WRAPUP - Russia Turns Up Heat on Foreign Energy Projects
Date: 26-Sep-06
Country: RUSSIA
Author: Tom Miles
Russian moves to put the brakes on Shell and Exxon Mobil developments on Sakhalin Island in Russia's Far East have raised suspicions the Kremlin is seeking a bigger stake for Gazprom in the multi-billion dollar projects, signed when oil prices were lower and power lay with foreign investors.
Russian officials say they are motivated by concerns over the environment -- Sakhalin is adjacent to feeding grounds for the endangered Gray Whale -- and dissatisfaction the fields are running well over budget, cutting into Moscow's future earnings under the production sharing agreements that govern them.
Natural Resources Minister Yuri Trutnev said in a statement on Monday there was no question of removing Shell's licence for the world's biggest liquefied natural gas project.
Shell was not immediately available for comment, but Sakhalin-2's Shell-owned operator Sakhalin Energy warned of delays last week after Russia revoked environmental permits.
That dismayed import-dependent Japan which is looking to Sakhalin to meet much of its future energy needs. It also sparked protests from Brussels, London and The Hague.
"There is no question of removing the licence because of the results of the investigation," Trutnev said.
"The inspection should only examine whether the operator is abiding by environmental protection legislation, not the other aspects of resource use in Sakhalin region or offshore."
Shell has infuriated the Kremlin by doubling its estimate of the project's cost to US$20 billion. Exxon's Sakhalin-1 project could cost US$17 billion, a Russian official said last week, a US$4.2 billion overshoot that Moscow says it will oppose.
Both projects are governed by production sharing agreements which mean they recoup their costs before paying any royalties to the Kremlin, so cost increases push back the date when the Russian state can expect to see its first revenues.
Later this week the deputy head of the environmental watchdog Oleg Mitvol will visit Sakahlin-2 and hold talks with project managers. British, German, Japanese, US, Dutch and South Korean diplomats are invited to attend.
In another blow to foreign operators and energy hungry Asia refiners, Russia's technical standards watchdog said on Sept 21 more checks were needed on Exxon's Pacific terminal, meaning regular shipments could not start before mid-Nov.
TNK-BP WARNING
TNK-BP, a joint venture involving Britain's BP, had previously escaped Moscow's attentions.
But on Monday Russian prosecutors warned TNK-BP unit Rusia Petroleum, which holds the licence to the huge Kovykta gas field in Russia's Far East, over violations of environmental law.
Rusia Petroleum's general director Valery Pak received an official warning, the prosecutor general's office said in a statement on its website.
This covered rule violations, the protection of nature and the conditions of the Kovykta licence agreement, it added.
TNK-BP said only last week that there was no sign of any threat to its licence for Kovykta.
"We haven't received anything on this. We've got all the permits in place, we've had all the environmental reviews, so I'm not sure what to make of this," said TNK-BP chief executive Robert Dudley at the time.
Kovykta has reserves of more than 2 trillion cubic metres of gas, which TNK-BP wants to export to China. But Russian gas monopoly Gazprom has so far only allowed it a licence to supply gas to the local Irkutsk region.
Sakhalin-2 involves the construction of the world's biggest liquefied natural gas (LNG) plant with capacity of 9.6 million tonnes a year that would supply customers in Japan, the United States and Asian countries.
