Lavrov urges dialogue on Sakhalin row

Moscow: Russia's foreign minister yesterday urged the Sakhalin-2 oil and gas consortium to resolve a simmering crisis over the $20 billion Royal Dutch Shell-led venture by dialogue with the Russian side.

Sergei Lavrov told a news conference on the Pacific Sakhalin island that he had observed “from the management of Sakhalin Energy a sincere wish to resolve these problems,'' Interfax agency reported.

“Any nascent issues should be settled through dialogue. I am convinced that dialogue with competent Russian structures will help settle these issues,'' said Lavrov.

“Our interests are best served if the unique wealth of this region is used for the good of Russia...The more effective we make use of our natural resources for our development, the stronger our position will be internationally,'' Lavrov said.

Russian officials have accused the venture of major environmental breaches, but analysts and diplomats say these are a likely pretext for the Kremlin to force Shell and its partners to renegotiate the deal to concede to less favourable terms.

Lavrov sought to calm such fears on Wednesday, saying the Kremlin did not want to scrap the contract for the venture and was not seeking to push foreigners out of its energy sector.

But despite Lavrov's reassurance, Russia's environmental watchdog issued yet another harsh statement on Wednesday saying Shell's project might have caused ecological damage worth $50 billion.

Shell angered Moscow a year ago by doubling the estimated costs of its Sakhalin-2 oil and gas project, delivering a $10 billion bill which, under Shell's production sharing agreement (PSA), is likely to arrive at the Kremlin's door.

The cost hike has also upset state-controlled gas monopoly Gazprom, which wants to swap one of its fields for a quarter of Sakhalin-2, and prompted threats of investigations and the withdrawal of a key ecological permit.