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Damage from Sakhalin II estimated at $5 billion

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Environmental damage inflicted by the vast Sakhalin II oil and gas project off Russia's Pacific Coast amounts to $5 billion, the head of the Russian Audit Chamber said Monday.

The formerly Shell-led project experienced months of intense pressure last year from Russian authorities, who accused it of causing serious environmental damage to Sakhalin Island, including deforestation, toxic waste dumping and soil erosion.

A month ago Russian energy giant Gazprom acquired 50% plus one share in Sakhalin II for $7.45 billion.

Sergei Stepashin said the decision to sell a controlling stake to state-controlled Gazprom was largely due to an inspection launched by the Audit Chamber.

"It was established in the course of the inspection that foreign investors intended to increase the cost of the project more than twofold - from $10 billion to $22 billion," Stepashin said.

Anglo-Dutch oil major Shell previously held a 55% stake, while Japan's Mitsui and Mitsubishi owned 25% and 20%, respectively. The operator's raising of its project cost estimate to $22 billion infuriated Russian authorities, since under the production-sharing agreement behind the project signed in the nineties, Russia only receives profits after the operator has recouped all costs.

"By swelling the cost estimate investors were pushing forward the date by which Russia would receive its first dividends," Stepashin said, adding that the Russian government stood to benefit more by holding a controlling stake in the project rather than receiving dividends.

Sakhalin II comprises an oil field with associated gas, a natural gas field with associated condensate, a pipeline, a liquefied natural gas plant, and an LNG export terminal. Most of the LNG from the project will be exported to Japan, which is seeking to diversify its energy imports.

The project's two fields have estimated reserves of 150 million metric tons (1.1 billion barrels) of oil and 500 billion cubic meters of natural gas.

© RIA Novosti

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