Sun, Sep 24, 2006 - Page 11 News List

US `concerned' as Russia axes consortium's permit


The US said on Friday it was "very concerned" by Russia's decision to revoke environmental permits for a Shell-led consortium developing the vast Sakhalin-2 energy project.

The State Department said the move against the British-Dutch oil giant working on the world's largest private oil and gas project, called into doubt Russia's commitment to developing transparent global energy markets.

Moscow's natural resources ministry on Monday said it had revoked a 2003 State Environmental Expert Review, saying the move would halt work on construction of natural gas infrastructure at Sakhalin-2 in a remote part of eastern Russia.

"The United States is very concerned by recent Russian government action threatening the revocation of Shell's environmental permit for the Sakhalin-2 oil and gas project," US State Department deputy spokesman Tom Casey said.

"Frankly, these recent actions cast doubt on Russia's willingness to uphold its recent commitments, including the commitments that were made by all G8 [Group of Eight] countries at the St. Petersburg summit," he said.

"We call on Russia to uphold the commitments on energy, including its commitment on upholding contracts," said Casey, although he added that he was not aware of any current action against US companies.

The announcement provoked a wave of criticism and concern worldwide this week, including from Japanese officials and the European Commission.

But a Sakhalin Energy spokesman said on Wednesday that work was continuing as normal as the company had been given no official notice.

The project has attracted controversy because it falls under a production-sharing agreement (PSA) concluded on what officials say were highly unfavorable terms for Russia.

Sakhalin Energy has agreed to deliveries of liquefied natural gas starting from 2008 to energy companies in Japan, which is trying to diversify supplies away from the Middle East.

Under the PSA, Russia receives a share in the profits from Sakhalin-2 on a gradually increasing scale only after the companies involved have recouped initial investments and reached a certain level of profit.

Sakhalin Energy is 55 percent owned by British-Dutch giant Shell. Japanese firms Mitsui and Co and Mitsubishi Corp hold 25 percent and 20 percent in the project, respectively.

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