Sakhalin II inspection may not lead to license revocation – foreign minister

Inspection of compliance with contractual provisions of the Sakhalin II project will not necessarily result in the revocation of the development licence, Russian Foreign Minister Sergei Lavrov told an international conference, Sakhalin Oil and Gas, in Yuzhno-Sakhalinsk, the administrative centre of Sakhalin Island, 6,500 miles east of Moscow.

He said the goal was to ensure strict compliance with the contractual provisions by all parties.

Lavrov said there were growing complaints about inspections of the effectiveness of projects carried out under production sharing agreements (PSA) and harsher monitoring of compliance with environmental legislation in hydrocarbons development projects.

"Suggestions that a revision of the production sharing agreement is being considered, or that foreigners are being driven out of Russia's energy sector, are absolutely groundless," the minister said.

He said Russia believed that "foreign investments in the Russian fuel and energy sector help stabilize the situation on the global energy markets."

On September 18, the Russian Ministry of Natural Resources, in response to the protest lodged by First Deputy Prosecutor General Alexander Buksman, cancelled its 2003 approval order of the state environmental expert examination of the second phase of Sakhalin II.

Project operator Sakhalin Energy subsequently made a statement saying that the cancellation of the Natural Resources Ministry Order No. 600 may have extremely negative consequences for the project and Russia, and might delay the completion of the project.

The company pledged to continue working jointly with the Russian authorities to settle the problem and preserve the trust of energy consumers in Japan, South Korea and North America, to which Sakhalin Energy has contractual obligation to start deliveries in 2008.

The Sakhalin II PSA was signed in 1994 by the Russian government and the administration of the Sakhalin Region acting on behalf of Russia. The main shareholders of project operator Sakhalin Energy are Anglo-Dutch Royal Dutch Shell (55%) and Japan's Mitsui (25%) and Mitsubishi (20%).

The project was initiated to develop the Piltun-Astokhskoye oilfield and the Lunskoye natural gas field, whose recoverable resources are assessed at 150 million tons of oil and 500 billion cubic meters of natural gas, and to build a gas liquefaction plant with the annual capacity of 9.6 million tons.