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Energy, commodity projects under Kremlin pressure

Russia has turned up the heat on Royal Dutch Shell's $20 billion Sakhalin-2 oil and gas project in Russia's Far East, Exxon Mobil's Sakhalin-1 and BP Plc's venture with Russia's TNK.

Following is a list of foreign projects under pressure in Russia.

SHELL'S SAKHALIN-2

One of the world's biggest energy projects that is expected to cost around $22 billion, double its original budget.

The Kremlin has been angered by the cost overruns which mean a long delay before it starts seeing returns under its Production Sharing Agreement with Shell. The contract stipulates Shell can recoup its costs before paying anything to the state.

On Sept. 18 Moscow revoked a key environmental permits for the project because of allegations that Shell had violated their terms. Shell denies this.

On Oct. 25 Russian Natural Resources Minister Yuri Trutnev ordered a prolonged environmental probe into Sakhalin-2 and threatened there would be prosecutions.

Gas monopoly Gazprom has also revealed that asset swap talks with operator Shell had stalled for months due to Shell's cost overrun at Sakhalin.

SHELL'S SALYM PETROLEUM DEVELOPMENT JOINT VENTURE

On Oct. 20 Salym, a joint venture with Sibir Energy, said it had received a back-tax claim which it was disputing. Vedemosti newspaper said the claim was for more than $10 million. The venture operates three fields in the Khanty-Mansiisk region of Western Siberia and started producing commercially last November. It is expected to be producing at least 165,000 barrels per day by the end of the decade.

EXXON'S SAKHALIN-1

This Exxon Mobil-led oil and gas project seemed to be going more smoothly than Sakhalin-2 until Russia's Far East environmental watchdog said in Sept. the oil export terminal needed to undergo more checks.

On Oct. 11 Russian authorities said it may take two months before full operations were allowed. They also said full scale oil production of 250,000 barrels per day could be delayed to the first quarter of 2007, from the end of 2006.

On Nov. 7 a Russian official said technical standards agency, Rostekhnadzor, did not expect to clear Sakhalin-1 for full-scale oil exports at least until December -- a delay of at least another 15 days.

Unlike Sakhalin-2, Exxon has a Russian partner, state oil firm Rosneft with 20 percent. But this has so far done little to persuade gas monopoly Gazprom to allow the group to build a gas pipeline to China. Gazprom has a rival project.

Moscow has said Exxon may raise its projected development costs to $17 billion from $12.8 billion due to higher metals prices and a weaker dollar.

On Sept. 22 Russia snubbed Exxon's claim on a small field located near Sakhalin-1, giving Rosneft the right to develop it.

TOTAL'S KHARYAGA

Russia has only three production sharing deals with foreign companies, which include Shell's Sakhalin-2, Exxon's Sakhalin-1 and Total's Kharyaga in West Siberia.

Kharyaga, a much smaller development compared with the Sakhalin projects, has been at odds with the resources ministry for years. The ministry says the French firm is not developing the field quickly enough, which Total denies.

GAZPROM'S SHTOKMAN

Gazprom, the world's largest gas producer and supplier of a quarter of Europe's gas needs, delivered a blow to international energy firms when it announced on Oct. 9 it would develop the $20 billion Shtokman Arctic gas field alone and divert to Europe supplies that had been intended for the United States.

The news stunned the five firms that had been vying for years for a stake in development of the field, which contains more than enough gas to supply the whole world for a year.

The contenders were Total, Statoil, Norsk Hydro, ConocoPhillips and Chevron.

TNK-BP'S KOVYTKA

Oil major BP had hoped to turn Kovykta, a large gas field in Russia's Far East, into a main source of gas for energy hungry China. But Russian prosecutors have warned TNK-BP unit Rusia Petroleum, which holds the licence to the huge field, over violations of environmental law.

BP's Russian vehicle, TNK-BP, went as far as signing supply deals with China and South Korea only to discover several years ago that Gazprom had been made Russia's gas export monopoly and no gas can leave the country via other firms.

The $20-billion project is now stuck on a regional basis with TNK-BP planning to supply a small local customer base with no clear answer as to whether exports would be ever allowed.

Industry analysts say the project could be unlocked if Gazprom becomes a partner of BP in TNK-BP by buying out half of it from Russian billionaire owners. The deal is valued at $25 billion and could be already in the works.

On Sept. 28 the head of Gazprom's oil unit, Gazprom Neft, said it would be interested in buying shares in TNK-BP if its Russian owners decide to sell.

TNK-BP'S ROSPAN

Russian prosecutors said on Nov. 9 they had opened a criminal investigation into licence violations at TNK-BP's Rospan unit. They allege multiple ecological and licensing violations at the Novo-Urengoi and East-Urengoi gas fields.

They are located near West Siberian production sites operated by Gazprom and belonged to the gas monopoly before being spun off in the early 1990s.

The launch of the criminal investigation was the second move in as many days against Rospan. On Nov. 7, prosecutors requested the revocation of its main Siberian gas licences, which previously belonged to Russian gas monopoly Gazprom.

POLISH PKN-ORLEN

Russia's pipeline monopoly Transneft suspended oil supplies to Lithuania in August blaming a pipeline leak.

Investors have, however, said the move was Moscow's reaction to Vilnius's decision to sell its Mazeikiu refinery and Butinge oil terminal to Polish PKN Orlen.

Russian firms, including state Rosneft, had hoped to outbid PKN in the battle for the refinery. The suspension of supplies is broadly viewed by analysts as pressure on PKN to sell out.

CPC

Russia has been blocking expansion of the Chevron-led pipeline from Kazakhstan to the Black Sea via its territory for over two years as it says the group is underpaying taxes to Russia, a key state shareholder in the venture.

Kommersant newspaper said Russian tax officials had removed documents from the firm and questioned employees in an investigation into back-tax claims of around $175 million.

Russia is also demanding CPC takes part in building a bypass of the Turkish Black Sea straits as it says that if the pipeline doubles capacity to 1.3 million bpd, Russian firms will suffer from yet more delays in shipping oil to the Mediterranean.

VSMPO-AVISMA

The Kremlin has staked a claim to a large share of world titanium supply after Russia's state arms trader bought a stake in private firm VSMPO-Avisma in a deal with huge implications for Western aerospace giants.

The move has raised concerns titanium supply to industry leaders Boeing and Airbus could be disrupted. In the case of Boeing, U.S. sanctions imposed on Rosoboronexport for arms deals with Iran could also harm supply. VSMPO-Avisma and Boeing have played down such fears.

© Reuters

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