Russia Cancels Permits For Shell's Giant Sakhalin-2 Field

Russia said Sept. 18 it had cancelled an environmental permit essential for a Shell-led consortium to develop the huge Sakhalin-2 oil and gas field, as a top official warned other foreign energy companies may lose their licenses. Sakhalin-2 is the world's biggest privately funded energy project. The decision will halt all work at the $20 billion Sakhalin-2 project, according to the state agency on natural resources, which filed suit last week to have the ecological assessment revoked.

The permit withdrawn from British-Dutch Shell is the latest example of official pressure on foreign investors as the Kremlin moves to tighten its grip on the country's vast energy resources.

Earlier Sept. 18, a top official at the natural resources ministry said foreign companies' licenses at three energy projects -- ExxonMobil's Sakhalin-1 project, Shell's Sakhalin-2 and Total's Kharyaga Arctic oil field -- were at risk of cancellation. A report by the ministry of natural resources in May attacked both ExxonMobil and Shell for inefficiency and cost overruns at Sakhalin-1 and Sakhalin-2, saying Russian companies should be given majority control of both projects. Russia's Natural Resources Minister Yury Trutnev criticized the management of the project last week, saying Russia could lose $10 billion (7.87 billion euros) of revenue because of mismanagement. Shell's troubles also come at a time when the Russian government is moving aggressively to increase state control over its natural resources sector, especially oil and gas production.

Analysts said that Russia's growing desire for majority control of all major energy projects was the main motivation behind recent pressure on foreign companies.

Valery Nesterov, oil and gas analyst at Troika Dialog, called the stated environmental concerns "a pretext." The agreements under which Shell, Exxon and Total are operating "were concluded at a time when oil prices were very low. Now that oil prices are higher, there is an understanding in the government that those laws are not as beneficial for Russia as they could be," Nesterov said.

Copyright Agence France-Presse, 2006

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