Russia to study plan to hike Sakhalin cost to $20 billion

Aug 3 | Updated: Aug 4 2005, 06:19am hrs
The Russian government will examine Royal Dutch Shell Plcs plans to double to $20 billion the cost of a liquefied natural gas project in Russias Far East, a local official said.

Shell announced the possible cost increase on July 14 and also said deliveries of liquefied natural gas, or LNG, will start in the summer of 2008, about eight months behind schedule. Sakhalin Energy Investment Co, in which Shell holds a 55% share, is tapping oil and gas fields in the Sakhalin region.

"We didnt get official documents so far for the new cost breakdown," Alexander Romanov, a deputy head at the Sakhalin region administrations energy department, said today by telephone. "They will have to explain why such increases have occurred." Sakhalin-2, the worlds largest oil and gas project, is the centerpiece of Shells efforts to revive production and increase reserves by drilling new wells, rather than through acquisitions. Shell chief executive Jeroen Van der Veer is trying to regain investor confidence after Shell, Europes second-largest oil company, overstated its oil and gas reserves by 41%.

Talks on Sakhalin with Russian authorities and the project partners will "take at least a couple of months," van der Veer said July 28. Sakhalin Energy will still have to complete an "internal evaluation" of the cost increase and provide details to shareholders, Ivan Chernyakhovsky, a spokesman at the venture, said on Wednesday by phone from Moscow. The final study will be submitted to the Russian government for approval.