Sakhalin pipeline $10bn over budget

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The Independent Online

Shell, the troubled oil giant, revealed yesterday that the costs of building its controversial Sakhalin gas project in Russia had shot $10bn (£5.7bn) over budget.

It said soaring metal prices, higher contractor fees and the fall in the dollar could double costs of the second phase to $20bn. In a further blow, Shell pushed back the date of the first deliveries of liquefied natural gas (LNG) from Sakhalin II to the summer of 2008 from November 2007.

It said estimates of costs of schedules of the project were still "under review".

Malcolm Brinded, the head of exploration and production, said Shell was taking "immediate action" to address the issues. He said: "We are consulting and discussing with appropriate stakeholders to enable this critical and challenging frontier project to come to an acceptable completion. The exploration and production executive team ... always recognised the massive challenges of this project."

Sakhalin II is the second phase in a project that began in 1996 and saw the first oil produced three years later. It involves the construction of offshore platforms and pipelines to a new LNG plant and export terminals on the island.

The project has been criticised by environmental groups for potential damage to rare species as well as to local communities. Three months ago, Shell was forced to re-route the pipeline, which could eventually pump 140,000 barrels of oil a day, because it threatened the feeding grounds of the Western Grey Whale. There are thought to be only 100 left.

Shell said its global investment programme would total £15bn in 2005. Its shares closed up 4.15p at 549p.

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