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Shell's pipeline costs overflow to $22bn

Nick Mathiason
Sunday October 16, 2005
The Observer

The escalating financial crisis at one of Shell's most crucial energy projects, already massively over budget, has taken a turn for the worse.
It is understood that the Sakhalin-2 gas and oil pipeline project, which originally had a budget of $10 billion, could now cost $22bn. The scheme will transport oil and gas from an island off the east coast of Russia.
Last month the Anglo-Dutch energy giant admitted the project would cost around $20bn, but sources close to the Sakhalin Energy Investment Company, which Shell currently controls, suggest the final bill could be even higher.
The financial crisis has prompted Gazprom, the state-owned Russian energy giant, to delay rubber-stamping a deal that would see it take a 25 per cent stake in Sakhalin-2.
Gazprom wants to digest the implications of the huge cost overruns. It is thought that if the finances continue to run into problems, Gazprom could use the the crisis as a way of buying a larger chunk of the project on the cheap.
Shell is desperately trying to secure bank loans to help finance Sakhalin-2, which it says will generate $45bn worth of oil and liquefied natural gas.
Campaigners are calling on the European Bank for Reconstruction and Development (EBRD) to refuse to support the project. Shell executives were locked in meetings with bank officials last week to persuade it to lend the funds, but protesters argue that the environmental devastation caused to the island's rivers and bays by the scheme, as well as the threat to the survival of the endangered Western Pacific grey whale, make the project unsupportable.
Doug Norlen, policy director at the group Pacific Environment, said: 'This is a test of the EBRD's character. Is it a distinguished institution, or a bank that caves in to special interests and industry pressure?'
http://observer.guardian.co.uk/business/story/0,6903,1592947,00.html

Posted Date: 
22 October 2005 - 1:34pm