Russia told Shell to suspend Sakhalin Pipeline work
The venture includes Russia's first liquefied natural gas export plant at the southern end of Sakhalin Island. The plant needs the pipeline to bring in gas from fields further north, where ice flows make shipping difficult in the winter. Environmental groups seeking to protect whales and salmon have already forced Shell to redesign and reroute onshore and offshore pipelines as part of the second-phase of the Shell-led Sakhalin-II project (for Sakhalin Energy Investments Co.). Shell has struggled to boost its production and reserves amid cost overruns or delays at several major projects, including the Bonga deepwater oil field in Nigeria, which started in November, two years behind schedule.
Sakhalin Energy Investment is 55% owned by Shell, 25% by Mitsui & Co. and 20% by Mitsubishi Corp. Shell and state-run Gazprom are negotiating a swap that would give Gazprom at least 25% of the project in return for Shell taking a 50% stake in Russia's Zapolyarnoye field in Siberia.
Sakhalin Energy already sells some oil during summer months from the first phase of the project, and plans to start its first LNG deliveries in the summer of 2008. It has already sold „virtually all” of the 9.6 million tons per year of LNG that the plant is expected to produce, to buyers in countries including Japan and the US. Overall construction work for the second-phase is 75% complete. The 800-kilometer (497-mile) twin oil and gas pipelines pass through regions prone to earthquakes, and its vulnerability to landslides was among environmental concerns raised with the European Bank for Reconstruction and Development at a public consultation in Yuzhno-Sakhalinsk, the island's main town, on March 23. Almost 2,000 people were killed in 1995, when a magnitude 7.6 quake struck northern Sakhalin. The EBRD, which was established to promote economic development in former Soviet-bloc countries, is examining the project's environmental and social record to determine whether it should lend Sakhalin Energy about $200 million. It expects to make a decision by September.
Sakhalin Energy said 1,400 kilometers of pipeline have been completed so far, most of it buried underground, out of a total of 1,600 for both the oil and gas lines. Sakhalin Energy officials say the pipeline is safest buried underground, packed by material that allows it to shift in its trench during tremors. Oil pipelines were built above ground in Alaska because permafrost there made it too difficult to bury them. Natural Resources Ministry in 2003 commissioned an environmental study, including a group of 50 experts, which approved the project and efforts to mitigate the effect of landslides. (Bloomberg)
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