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Political Ecology
// The Ministry of Natural Resources shits down Sakhalin 2
Russian Minister of Natural Resources Yury Trutnev signed an order yesterday invalidating the invalidating the clean bill of ecological health given the Sakhalin 2 project by the state. When his order goes into effect, after it is conciliated with the Rostekhnadzor agency, the operator of the project, Sakhalin Energy, will be forced to stop work. That will lead to missed deadlines and suits from natural gas buyers. Analysts say that Russian authorities will thus force participants in product sharing agreements to reconsider them.
The Natural Resources Ministry reports that it received a protest from Deputy Prosecutor General Alexander Buksman of the ministry's 2003 approval of the state's ecological examination of the second stage of the Sakhalin 2 project and satisfied the protest. The Prosecutor General's Office reported on Saturday that it received information from deputy chairman Russian Natural Resources Supervisor Service (Rosprirodnadzor) Oleg Mitvol that the Natural Resources Ministry had violated nature conservation legislation when it conciliated the ecological findings on the Sakhalin 2 second stage. A Sakhalin Energy spokesman told Kommersant yesterday that “We are certain that there are no weighty grounds for invalidating the Ministry of Natural Resources' order.” The company said that the ministry's decision delay the implementation of the project. They added that, under the product sharing agreement for the project, all unforeseen expenses are liable for compensation by the Russian Federation.
Sakhalin Energy is owned by Royal Dutch/Shell (55%), and the Japanese Mitsui (25%) and Mitsubishi (20%) companies. It is developing the Piltun-Astokhskoe and Lunskoe deposits on the northeast Sakhalin shelf. Those deposits have recoverable reserves of 150 million tons of oil and 50 billion cu. m. of natural gas. They are to be connected with the pipeline to the liquefied natural gas plant being built on the southern end of the island and the oil export terminal. All of their gas has been contracted for and supplies are to begin in 2008. Eighty percent of the infrastructure has been completed. Now a new set of documents and file a new application for ecological approval. Then under Russian law, the Natural Resources Ministry has six months in which to make its conclusion, although that deadline is extendable.
A source familiar with Sakhalin Energy's delivery contracts says that “hundreds of millions of dollars” in fines could result from the ensuing delivery delays and that the company is searching for liquefied natural gas on the open market, but not finding it “because it is in such demand.”
“The whole campaign is aimed at changing the conditions of the product haring agreements,” Troika Dialog analyst Valery Nesterov observed. He said that the current agreements do not allow the state to receive windfall profits, and the authorities cannot change the agreements unilaterally. Analysts say that the scandal will no affect foreign investments in Russian oil and gas in any case. “Because of the high political risks, foreigners only enter the Russian economy only in projects that are super-high earning,” Natalia Volchkova, an economist at the Center for Economic and Financial Developments, noted. She also said that the investment climate in sectors unrelated to natural resources would be hurt by the scandal, however.
Denis Rebrov
All the Article in Russian as of Sep. 19, 2006
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