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Salmon Concerns Delay Pipeline For Russian Liquid Natural Gas

By Andrew E. Kramer


Citing damage to salmon rivers on the Sakhalin Island, the Russian government on Monday withdrew environmental approval for the largest private energy investment in the country, the Royal Dutch Shell-operated Sakhalin-2 liquefied natural gas project.

The move, while foreshadowed by Russian government statements in recent weeks, came as a significant setback to the $20 billion energy development work that is currently employing 17,000 people on the island and is presented by Shell as the world’s largest combined oil and natural gas drilling project.

Liquefied natural gas from Sakhalin-2 has already been sold in futures contracts for delivery in 2008, including shipments to the West Coast of the United States; it was unclear whether Monday’s decision would force delays to accommodate new environmental studies on a pipeline that is nearly finished.

The complex development straddles the coastline on the northern rim of the island, with offshore platforms, a liquefied natural gas plant, and hundreds of miles of pipeline snaking toward an ice-free port in the south, near Japan. It has had its share of skeptics among conservationists; earlier criticism prompted a delay to safeguard gray whale feeding grounds.

This time, oil analysts in Moscow said the environmental ruling looked more like a maneuver by the Russian government to renegotiate terms or force Shell to sell a stake to Gazprom, the state natural gas company, on favorable terms. The ruling came amid a tense business dispute between the Anglo-Dutch oil major and Gazprom.

It remained unclear, analysts said, whether the decision was a limited attempt to bring Gazprom into the Sakhalin-2 project, or signaled the beginning of a more sweeping revision of the production sharing deals that brought foreign companies to Sakhalin Island in the 1990s.

The island, a ribbon of sub-Arctic land off Russia’s east coast, and the surrounding seas hold more oil than the remaining deposits in the North Sea. Nearly untapped now, the island’s resources could help shape energy markets in Japan, Korea, and China for decades.

The ruling by Rosprirodnadzor, the state regulator, revoked a 2003 environmental approval for the Sakhalin-2 project, according to a posting on the agency’s Web site; before the ruling can take effect, it must be cleared by a second Russian government agency, according to the statement.