RusEnergy

14.09.2006 The International Herald Tribune - Jurgen Hambrecht, head of the huge German BASF chemical manufacturing complex, that receives most of its massive gas supplies from Russia's natural gas monopoly Gazprom, gave an interview to the International Herald Tribune and urged Europe to thank Russia for the steady supply of the blue fuel. Hambrecht, who has run the German chemical giant since 2003, hopes he has answered the question of how to keep energy-intensive BASF running by developing an ever-closer partnership with Gazprom. Last year, BASF became part of a consortium, led by Gazprom, to build a gas pipeline under the Baltic Sea. It is now embarking on a venture with Gazprom to market and distribute Russian natural gas throughout Europe. The alliance puts Hambrecht in the position of defending a monopoly gas exporter that has raised hackles in Europe with its muscle-flexing and expansion plans. But for Hambrecht, this is a reality Europe must accept as it debates how to secure its long-term energy needs. "There are some objections that Gazprom is a sort of monopoly," Hambrecht said in an interview. "But Gazprom has delivered over many decades the energy we need in Europe reliably and at highly competitive prices." Though BASF was praised in financial markets for securing its energy needs, the company has contributed to setting an energy policy for Germany and the rest of the Continent, the wisdom of which is being debated. Gazprom began the year by briefly cutting off the flow of gas to Ukraine in a pricing dispute, a move that may have made commercial sense, but which Hambrecht conceded was a public relations disaster across Europe. But he argued that, to the extent that Gazprom reaps more rewards from energy distribution in Europe, the relationship will evolve into one of mutual interdependence, making such disruptions less likely. For now, though, Europeans need to accept that Russia has what it needs. "It a good thing to recognize this, and it is coming at the right time," he said. Hambrecht gave a full-throated endorsement of Gazprom as an energy partner. BASF's relationship with Gazprom really got started in 1993 with the creation of Wingas, a joint venture with Gazprom, through Wintershall, the energy division of BASF. The two companies built a gas pipeline from the German border to BASF's Ludwigshafen plant, and began selling gas to corporate customers as a way to make the conduit profitable. That put Gazprom in the lucrative business of distributing gas — rather than simply pulling it out of the ground — and secured BASF's energy needs. Wintershall last year provided BASF with 18 percent of its revenues — which rose nearly 50 percent from 2004 to 2005 — suggesting the bet has paid off as gas prices rose. BASF also enjoyed a secure supply of energy at good prices. "Sure, you can say this is on the fringes of our core competences the chemical industry," Hambrecht said. "But if you want to have reasonably priced gas here then you need certain economies of scale and infrastructure." In April, with the Baltic pipeline project under way, BASF took its partnership with Gazprom one step farther. In exchange for a nearly 35 percent interest in a bountiful Western Siberia gas field, BASF is now setting up Wingas Europe, a 50-50 joint venture that will market gas throughout Europe, furthering the Russian company's goal of embedding itself in Western Europe's energy infrastructure. Claudia Kemfert, an energy analyst with the German Institute for Economic Research in Berlin, pointed out that BASF's projects amounted to a strategic decision in favor of a single supplier — Russia — rather than diversifying to Norway and Qatar, for example, or developing alternatives to fossil fuels. "You always have to see energy in a broader context," Kemfert said. "These companies are helping feed demand for energy, and deepening our dependence on Russian sources."

23.09.2006 - MosNews - Russian President Vladimir Putin moved on Saturday to allay Western fears over Russia's intentions towards European aerospace group EADS and offered the prospect of more gas for Europe, saying Russia was a reliable energy partner, the Reuters news agency reports. Putin's remarks at a joint news conference with his French counterpart Jacques Chirac and German Chancellor Angela Merkel followed a meeting between the three leaders where aviation and Western worries about energy security were in focus. France has billed the meeting, the latest in an informal series that began in 1998 between Chirac, former German Chancellor Helmut Kohl and Putin's predecessor Boris Yeltsin, as a chance to exchange views. As well as energy security, attention at the three-way summit has been focused on Russia's desire to join the core group behind EADS after it acquired a 5 percent stake in the flagship European aerospace group earlier this month. Shorn of Soviet-era debt and flush with oil revenues, a newly confident Moscow has sought to create industrial champions in energy and other strategic sectors, notably aerospace and defense. EADS bosses have welcomed technical cooperation but firmly rebuffed talk that Russia might become a core shareholder. But Putin said the West had nothing to fear. "As far as the 5 percent stake is concerned, it is not a sign of some sort of aggressive behavior by the Russian side; it is a play on the share market and the Russian bank saw a favorable deal and took advantage of it," Putin said. "We do not intend to use these shares to change the institutional situation in EADS but we are ready for partnership," he told the news conference. Worries about Moscow using its energy resources as a political weapon resurfaced in a standoff with Western oil companies over huge oil and gas projects in Russia's remote Sakhalin region. Russia, which caused deep alarm in Europe last winter by cutting off gas supplies to Ukraine, has put the brakes on energy projects in Russia operated by Royal Dutch Shell and Exxon Mobil. Some in the market see the move as an attempt to increase the Kremlin's stake in those projects. Putin said that Russia was a reliable partner and said natural gas giant Gazprom was considering exporting gas to Europe from its giant Shtokman gas project. "I can inform you that Gazprom is looking at that and the decision to do that could be taken in the near future," he said. "If at the moment Russia exports about 55 billion cubic meters of gas to Europe, from Shtokman alone we can export between 25 and 45 billion cubic meters," he said. He said the reserves in Shtokman could last between 50 and 70 years.

09-26-2006 RBC NEWS - Gazprom's decision to re-direct gas to Europe reduces the chance for US companies to take part in the project
Up to half of gas produced at the Shtokman gas condensate field could be pumped to Germany by pipelines instead of being transported by tankers to the United States. Gazprom would decide on the issue shortly, Russian President Vladimir Putin said in Paris on Saturday. This reduces the chance for US companies to take part in Gazprom's large scale project.
Gazprom was considering the possibility of exporting Shtokman gas to Germany, Russian President Vladimir Putin told reporters after his meeting with French President Jacque Chirac and German Chancellor Angela Merkel on Saturday. "During her first visits to Russia some time ago, Ms. Merkel raised the possibility that some of the resources from the Shtokman gas field – one of the largest in north-eastern Russia - could be redirected to the European market. Gazprom is considering this possibility, and the decision could be passed very soon," he said.
Russia currently sells to Germany 55 billion cubic meters of gas a year, according to Putin. "From Shtokman alone, we will be able to send to Germany between 25 and 45 billion cubic meters of gas a year," Putin said. Gazprom's spokesman Sergei Kupriyanov did not tell RBC Daily how much gas his company planned to pump to Germany, but made it clear that Gazprom was seriously considering gas deliveries from Shtokman to Europe.
Experts link Gazprom's idea to an increase in Russian gas exports to Europe. "Gazprom's gas production is stagnating, and pumping Shtokman gas by pipeline could become an important element of new contracts with European partners," says Leonid Mirzoyan, an analyst at Dresdner Kleinwort Wasserstein.
The new project could also be seen as a sign of worsening relations between Russia and the United States. "It also reflects Gazprom's reluctance to orient the project solely towards the American market for liquefied natural gas," Mirzoyan noted.
This could reduce the chance for US companies to take part in the project, the analyst thinks. Gazprom's shortlist for the Shtokman project includes Norway's Hydro and Statoil, the US's Chevron and ConocoPhillips, and Total of France. Kupriyanov said he could not assess the chances of the US companies to become Gazprom's partners in the Shtokman project.
Meanwhile, a manager at one of two US firms shortlisted for the project, told RBC Daily that Gazprom was not yet in talks with the short-listed candidates. He said the project outlined by Putin was "just one of many possible options, and final conclusions could not be made before Gazprom announces its decision."
The Shtokman gas condensate field with reserves of 3.7 trillion cubic meters is located on the shelf of the Barents Sea. Gazprom's subsidiary Sevmorneftegaz holds a license for it. Igor Meshcherin, responsible for project analysis at Gazprom, said earlier that output could amount to 90 billion cubic meters a year. The project was estimated at between $12 billion and $14 billion.

MOSCOW, September 25 (RIA Novosti) - Russian prosecutors issued a warning Monday that a BP joint venture operating in East Siberia could have its license revoked if it fails to address environmental protection and other problems. The Prosecutor General's Office said Rusia Petroleum [RTS: PTRL], majority owned by Russian-British joint venture TNK-BP, had failed to comply with legislation on the use of natural resources and environmental protection, as well as with the terms of its license agreement on the development of the Kovykta gas field, in the Irkutsk Region. In the event of further non-compliance, the company will have its license revoked, a statement from the office said. Under Russia's natural resources legislation, companies licensed to develop a deposit should ensure the protection of social, economic, environmental and other interests of local communities. In Rusia Petroleum's case, "this provision is not complied with, resulting in an infringement on the state interests of the Irkutsk Region and on the rights of its citizens," the statement said. Specifically, Rusia Petroleum committed itself to supplying the region with 9 billion cubic meters of natural gas a year from 2006. But, according to prosecutors, the company has failed to meet this commitment so far. TNK-BP owns a 62.4% stake in Rusia Petroleum; 25.82% belongs to financial industrial group Interros, and the Irkutsk regional government holds the remaining 11.24%. The Kovykta gas field, one of the largest in East Siberia, has 1.9 trillion cubic meters of proven reserves. It is highly important to the Russian government, which is pursuing an ambitious project to build a gas pipeline network to meet the needs of some Asian nations, primarily energy-hungry China, and to diversify its export destinations. The prosecutor office's move comes against the backdrop of a decision made by the Natural Resources Ministry last week to annul its approval of an environmental study on the Shell-led Sakhalin II energy project off Russia's Pacific coast, which could jeopardize the start to supplies to Japan of liquefied natural gas slated for 2008. Russian energy giant Gazprom had been in negotiations with Royal Dutch Shell over swapping a stake for a share of another energy project in northern Russia, but pulled out of the talks. Gazprom, which was appointed in 2001 to coordinate all gas projects in East Siberia and Russia's Far East, has also been in talks with TNK-BP on a role in the Kovytka deposit.

MOSCOW, September 25 (RIA Novosti) - Bankrupt Russian oil company Yukos [RTS: YUKO] and an investor offering to take on its debt have taken a "time-out" to consider the potential deal, the company's board chairman said Monday. Viktor Gerashchenko said in July an unnamed investor offered Yukos a lifeline by repaying its debts, which stand in excess of $18 billion. The following month, a court declared Yukos bankrupt, upholding a vote by the company's creditors and led by the tax authorities and the state-controlled oil company Rosneft. The Russian economics magazine Profile quoted the board chairman as saying the investor offered to take on Yukos' debt in exchange for a controlling stake in the company. Gerashchenko told the magazine that after the offer was made, "the sides took a 'time-out,' following which internal discussions were held on whether or not to buy Yukos. Nothing is ruled out, in my opinion." When asked whether he supported the idea of selling all of Yukos' shares to Rosneft, Gerashchenko said: "Yes. But I am less concerned about the buyer than I am about minority shareholders losing money during the company's liquidation. This totals around $9 billion, invested by three large American hedge funds. And this could create an unpleasant legal problem in Russia, because they could go to court." The Moscow Arbitration Court's August 1 bankruptcy ruling on Yukos, formerly Russia's largest oil producer, came after three years of litigation with tax authorities over the company's tax arrears. Yukos, whose founder Mikhail Khodorkovsky is serving an eight-year prison term in Siberia after being convicted of fraud in May 2005, faces a total of $16.6 billion in claims from creditors, including its former core production unit, Yuganskneftegaz ($4.07 billion), now owned by Rosneft; the Federal Tax Service ($11.6 billion); Rosneft itself ($482 million); and more than 20 other companies.

COMPIEGNE (France) September 23 (RIA Novosti) - Russian energy giant Gazprom may in the foreseeable future decide to redirect a part of resources from the Shtokman gas field to European markets, President Vladimir Putin said Saturday. The Shtokman deposit holds an estimated 3.2 trillion cubic meters of natural gas, and 31 million metric tons of gas condensate in the Barents Sea. Some $12-14 billion will be invested in the project's first phase, and production will start in 2011. "Some time ago, German Chancellor Angela Merkel posed the question about the possibility of reorienting a part of resources from one of Russia's largest oil and gas deposits - the Shtokman field - to European markets," he said. "Gazprom is now considering this possibility." He also said Russia had no intention to cut energy transit via traditional routes and pledged to honor all commitments in the energy sphere. "None of our plans to expand transport infrastructure are aimed against anyone," he said. "They serve only one purpose - the diversification of transport flows to our main consumers in Europe. But our traditional transit countries will not face a shortage of resources on their markets and will continue playing an important role as transit countries. We are not planning to cut transit via transit countries." Gazprom is considering partners for the unique project off Russia's Arctic shelf, which could be operated under a production-sharing agreement, although such schemes elsewhere in Russia have come under considerable scrutiny in the past few weeks. A shortlist of companies competing for the project unveiled last September includes Norway's Statoil and Norsk Hydro, France's Total, and U.S. giants Chevron and ConocoPhillips. Gazprom will select two or three partners from the shortlist to form a consortium for the project. Gazprom, however, has repeatedly postponed the selection of Shtokman partners. The event was initially scheduled to take place in spring, then in August, but no partner has been selected so far.

COMPIEGNE (France), September 23 (RIA Novosti) - Russia's president said Saturday the Energy Charter Treaty should be amended or a new document should be drafted. The Energy Charter Treaty is an international agreement originally based on integrating the energy sectors of the former Soviet Union and Eastern Europe at the end of the Cold War into the broader European and world markets. "It will be either a new document or an old one incorporating new provisions," Vladimir Putin said in response to a journalist's question. He said in its present form the treaty harmed Russian interests. "Our producers, who have long-term contracts for [energy] supplies, are unhappy because it [the Charter] puts us in an unfavorable situation in signing long-term transit contracts," he said. He also said Russia was concerned about the liberalization of nuclear services market in Europe. "We agreed that the nuclear materials market in Europe would be liberalized," he said. "We believe that our positions are subject to discrimination, and the Russian side annually loses from $200 mln to $300 million." The original European Energy Charter was signed in the Hague on December 17, 1991, containing a declaration of principles for international energy including trade, transit and investment, together with the intention to negotiate a binding treaty.

Zeta-Files 09-13-2006 Kommersant
// FSB Director Installs His Own Son in the Company
Word got out yesterday of the appointment of Andrey Patrushev, son of Russian Federal Security Service (FSB) head Nikolay Patrushev, as an advisor to Rosneft Board of Directors Representative Igor Sechin. The younger Mr. Patrushev comes to the post from the "oil" department of the FSB. The "familial" consolidation of the management of Rosneft is going on amid rumors of the company's imminent privatization: it is expected that the government's share in the company could decline as early as April 2007. Andrey Patrushev, who is 25, graduated from the FSB academy three years ago and currently works as the deputy manager of the ninth "P" (industry) administrative department of the FSB, which is familiarly known as the FSB's oil department. He was recommended for the Rosneft post by the FSB, where his father, Nikolay Patrushev, will be enjoying a pay raise of 180% this year as the head of the service.
The post opens up many shining opportunities for Andrey Patrushev, especially taking into account that his older brother Dmitry works at Vneshtorgbank, where he is in charge of extending credit to oil companies.
The naming of the son of a senior "strongman" in President Putin's cabinet to a post in Rosneft takes place amid a new round of battles in the president's inner circle concerning privatization of the company and the division of stakes in the government's share of Rosneft's assets. In any case, however, most of the government officials and large-scale entrepreneurs polled by Kommersant believe that the government will always retain at least 50%, plus one share, in the company. Some scenarios have private shareholders gaining a larger share in the company, decreasing the government's share to around 75%. This could be followed by the sale of a blocking share in the company to a strategic investor. Some sources believe that this could happen as early as next April and that the strategic investor will be the Chinese state company CNPC. Other sources close to the government believe that privatization will take place during the sale of shares in Yukos.

RBC, 12.09.2006, Moscow 16:22:57.The situation surrounding inspections for compliance to technological requirements and observance of environmental legislation within the Sakhalin-2 project does not mean Russia's investment climate will get worse, Russian Natural Resources Minister Yury Trutnev said during a meeting with John Hess, the head of US oil company Hess. He stated that the natural resources ministry respected the production-sharing agreements for the development of the Sea of Okhotsk shelf fields. The Russian side, however, did not agree with the project operator's intention to add more items to the list of reimbursable costs and make changes to production sharing arrangements. The parties must comply with the stipulations of the agreement, and Russia cannot but defend its interests - otherwise its losses will amount to $10bn. This situation has nothing to do with a worsening in Russia's investment climate, Trutnev was quoted by the ministry's press office as saying. In turn, John Hess informed his Russian counterpart of the results and plans of his company's operations in Russia. In particular, he pointed out that Hess had invested $500m in exploration and development on Russian territory. The company intends to develop its business further in Russia, and in the long-term in eastern regions of Siberia, the chief executive stated.

September 12, 2006

Exxon Warns Russia Over Sakhalin Spat

WARNING  11.09.2006 - Reuters (by Deepa Babington) - - NEW YORK -- ExxonMobil on Thursday warned Russia to honor a decade-old production-sharing agreement to develop the Sakhalin-1 oil and gas block or risk spooking other foreign investors in the country. The statement comes as the government and Exxon squabble over whether the company has automatic rights to develop newly discovered reserves around existing deposits in the Sakhalin-1 project. The government plans to auction off the new deposits, while Exxon believes its license territory should be automatically enlarged to include them. Exxon said it was in talks with the government to resolve the issue, but that any resolution should account for the rights of consortium members and strictly comply with the Sakhalin-1 agreement as well as the law. "As the Sakhalin-1 project is one of the largest single foreign direct investments in Russia, it is globally visible and therefore serves as an indicator to others of the success or failure for other potential large foreign investment in the Russian oil and gas industry," Exxon spokesman Bob Davis said in a statement. "Any failure to honor the [agreement] could inevitably undermine the confidence of foreign investors and have a significant negative impact on the Russian investment climate," he said. Analysts have said the Kremlin -- which had already alarmed foreign investors with its dogged pursuit of oil company Yukos for back taxes -- is showing signs of increasing unhappiness with major projects controlled by foreign investors. Weeks of pressure by Moscow on the rival Sakhalin-2, led by Royal Dutch Shell, culminated Tuesday with the country's environmental watchdog saying it had asked a court to recognize that the scheme did not comply with ecological rules. Work will have to stop at that project if the suit is successful. Exxon, meanwhile, said it had started the process of exporting oil from Sakhalin-1 on schedule, marking a major milestone for the closely watched project. That met Exxon's own forecast of exports starting in August, despite some reports earlier in the summer that they could be delayed to October. Sakhalin-1 is the biggest new oil find in the area in many years and is expected to boost supply in a tightly stretched global market, helping ease high crude prices and displacing sales of competing African and Mediterranean crude into Asia. The first oil from Sakhalin-1 began flowing into the export system on Aug. 29, and the initial tanker will begin loading at the newly built DeKastri terminal this month, Exxon said. Oil production from the project should ramp up to a peak rate of 250,000 barrels per day by the end of 2006, it said.

MOSCOW, September 12 (RIA Novosti) - A leading U.S. energy company has invested $500 million in exploration and production in Russia, the company head said Tuesday. John B. Hess, chief executive officer of the Hess Corporation, a global oil and gas exploration and production company, held a working meeting Tuesday with Yury Trutnev, the head of the Russian Ministry of Natural Resources. Hess told Trutnev about the company's results and plans of operation in Russia, the ministry said. Hess told the minister his company intends to develop its business in Russia, and eventually in East Siberia, the ministry said. Hess Corporation acquired a 65% stake in Russian oil company Samara-Nafta in 2005. John Hess took over the company in 1995 from his father, Leon Hess.

September 6, 2006 - The Moscow News - By Valeria Korchagina - Miller and Niyazov meeting in Ashgabat on Tuesday. Niyazov demanded $100 per 1,000 cubic meters of gas in June. Gazprom on Tuesday said it had struck a three-year deal with Turkmenistan to buy its gas for $100 per 1,000 cubic meters -- a 50 percent hike on the current price of $65. The cost will most likely be passed on to Ukraine, the final customer for Turkmen gas, when the price increase takes effect in January. Under the deal, reached by Gazprom CEO Alexei Miller and Turkmen President Saparmurat Niyazov during talks in the Turkmen capital, Ashgabat, on Tuesday, the country's gas sales to Russia will drop to 50 billion cubic meters per year. Under a 2003 agreement, Turkmenistan was to sell Russia 80 bcm per year until 2009. Tuesday's talks were the latest in a series between the two men in Ashgabat since Niyazov in June threatened to cut off supplies unless Russia agreed to pay the $100 price. Niyazov also agreed Tuesday to send an extra 12 bcm of gas this year to help Ukraine prepare for the winter and secure Russian gas supplies to Europe. In January, Russia cut off supplies to Ukraine after demanding a fourfold gas price hike. The dispute was resolved when Ukraine agreed to increase the price it paid from $50 to $95 per 1,000 cubic meters. The reduced supplies of Turkmen gas from 2007 to 2009 will mean that Gazprom and other Russian producers will have to work harder to boost domestic gas output, analysts said Tuesday. Previously, Gazprom had hoped that Turkmen gas would fill gaps in the domestic market and help to buy it time to develop remote fields in northern Russia. Niyazov, one of the most authoritarian and erratic leaders in the former Soviet Union, insisted Tuesday that Turkmenistan would stick to the new deal. "First and foremost, we will supply gas to Russia. Don't think that Turkmenistan wants to go elsewhere with its gas," Niyazov said, Interfax reported. Gas exports to Ukraine via Russia are the main source of income for impoverished Turkmenistan, which only has limited export options. Niyazov has threatened to shut off supplies many times before, and has carried out his threat on a few occasions. The last time was in 2005, when supplies were cut off for a few months. In the 1990s, a price spat with Russia prompted Niyazov to cut off gas for 2 1/2 years while he sought a better deal. The new Turkmen price will almost certainly mean that Ukraine will have to pay at least $135 per 1,000 cubic meters of gas from January, said Valery Nesterov, oil and gas analyst with Troika Dialog investment bank. "For Ukraine, these are expected changes," Nesterov said.

05.09.2006 - MosNews - The owners of what was once Russia's largest private oil company, Yukos, plan to demand more than $50 billion in compensation from the Russian Federation following disintegration of the company. The Times reported on Tuesday, Sept. 5, that Yukos' majority shareholder GML, formerly known as Group Menatep, is bringing the Energy Charter Treaty Claim, the world's largest investment lawsuit, against the Kremlin. The damages being sought were previously estimated at $30 billion, but The Times has learnt that this is to rise to about $50 billion. The case is being heard by the United Nations Commission on International Trade Law in the Hague. Yukos was founded by Mikhail Khodorkovsky in 1993 and acquired vast assets through privatizations that many Russians felt were rigged. The company quickly became a powerhouse comprised of oil refineries, pipelines and oil and gas fields across Central Europe and Russia. When Khodorkovsky started supporting political rivals of Russia's President Vladimir Putin Yukos was hit with massive tax demands and the company's founder was thrown in a Siberian jail. Yukos' core production asset Yuganskneftegaz was confiscated by Russian tax authorities and later sold at a state-run auction for $9.5 billion. It was bought by the state-owned oil company Rosneft, which floated in July at a value of $80 billion. The Energy Charter Treaty Claim is seeking damages from the Russian government and accuses the Kremlin of discriminatory treatment against the company. The previous valuation of damages was based on the value of Yukos when the oil price was $30 a barrel. It has since risen to more than $70. Tim Osborne, a director of GML, said: "We would have sold out of Yukos at this higher price, so when our accountants are finished working out the numbers I think the claim will be closer to $50 billion." GML has attempted to negotiate a settlement with Russia but Osborne says they have received no response. The company has decided to abandon attempts to settle until after next year's general elections, when President Putin is due to step down. "The next big issue is that of jurisdiction, because the Russians claim that they are not bound by the court's findings," Osborne said. "This is clearly not the case, and if we get through this part of the case we think we will win on the substance of our argument." Yukos is now in two parts, with the Russian assets under administration and likely to be sold, probably to Rosneft and Gazprom. The foreign assets are held by a Netherlands-based holding company and these too are being sold off to return cash to GML and pay debts.

MOSCOW, September 5 (RIA Novosti) - The Sakhalin II project in Russia's Far East is one of the country's top priority energy projects, a Kremlin aide said Tuesday, against the backdrop of an ecological dispute. "Russia considers the Sakhalin II project as one of its most serious projects," Igor Shuvalov said. Russia's environmental protection agency, Posprirodnadzor, said earlier in the day it is taking legal action to overturn the conclusions of a state ecological probe, conducted in 2003 into the project off the country's Pacific coast. Shuvalov highlighted a recent settlement of a similar ecological dispute around the East Siberia-Pacific Ocean oil pipeline. "While drafting [a project] on an oil pipeline to the Pacific Ocean, we had a lot of problems with public watchdogs," he said. In April, President Vladimir Putin ordered the Siberia-Pacific Ocean pipeline rerouted from its original path, which would have seen it run within 800 meters of Lake Baikal, the world's largest body of fresh water and a UNESCO-listed World Heritage Site. And in May, Russia's oil company Transneft said the new route would be 10 times farther away than Putin had suggested should be the absolute minimum The court move is the latest problem for Sakhalin Energy Investment Company, which currently comprises Shell Sakhalin Holding (55%), Mitsui Sakhalin Development (25%) and Mitsubishi-controlled Diamond Gas Sakhalin (20%). Environmental concerns earlier in the year prompted the European Bank of Reconstruction and Development to withhold a loan for pipeline plans. Shuvalov said he saw no grounds for Rosprirodnadzor's claims to the members of the production sharing agreement. "I see no reasons for such an intimidating move. If talk of 'deliberate pressure' is true, I also do not see grounds for this, since another mechanism should be applied to ease the situation without damaging our reputation," he said. The Federal Service for the Oversight of Natural Resources started an inspection of Sakhalin Energy's alleged violations of ecological legislation and project specifications July 25, on the orders of Natural Resources Minister Yury Trutnev. If the Moscow district court meets the service's demands, all activities under the Sakhalin II project will be prohibited until the state ecological probe issues new conclusions and all violations of environmental legislation are eliminated. The service said its experts found the company failed to build anti-erosion facilities and had registered excessive disposal of industrial wastewater from the Molikpaq offshore production platform. "In addition, Sakhalin Energy consistently violated the schedule for submitting statistical reports on water consumption," the agency said last week. "In 2005, the Federal Service for the Oversight of Natural Resources registered excessive disposal of industrial wastewater from the Molikpaq platform, which is a violation of the Russian Water Code." It also said Sakhalin Energy had failed to submit timely reports on all prospecting and geological work. And with the energy industry reeling from the shock of the BP oil spill in Alaska, Shell suspended pipe-laying operations for a liquefied natural gas plant after the environmental agency complained about the landslide threat. Sakhalin Energy said work had stopped on several stretches covering 7 kilometers (4 miles) overall on the 800km (500 miles) line due to problems with subcontractors. But some analysts have interpreted the environmental watchdog's decision as a form of pressure on the British/Dutch company to conclude a deal with Gazprom, because the Russian energy giant is looking to gain a 25+1% share in the Sakhalin project in return for a 50% stake in the massive West Siberian Zapolyarnoye-Neocomian project. Shell announced last July it had signed a memorandum of understanding with Gazprom on the swap, which it said then was "strategically important to both parties." With the Russian government seemingly seeking to concentrate the nation's wealth in its own hands - a decision is still hanging in the air as to who will partner Gazprom in the mammoth Shotkman gas condensate field - the deal has gone no further. Costs on Sakhalin II have reportedly doubled to about $20 billion with rising commodity prices across the world, which has led Gazprom to say it wants to reduce the stake it would like to offer in Zapolyarnoye-Neocomian, because the value of the Sakhalin asset has fallen. The Sakhalin-II project comprises an oil field with associated gas, a natural gas field with associated condensate production, pipeline, a liquefied natural gas plant and an LNG export terminal. The total reserves of the two fields are 150 million metric tons of oil and 500 billion cubic meters of natural gas. The sister Sakhalin-I oil and gas project is operated by U.S. giant ExxonMobil, and state-owned oil company Rosneft holds a 20% stake. Rosneft is also seeking a role in the Sakhalin III project.