Shell Afraid Unable To Operate Its Sakhalin Project

Shell company said that the cost of its Sakhalin oil and LNG project would double to $20bn, so the first deliveries would be delayed by six months to mid-2008.

The Sakhalin 2 project is an important part of rebuilding Shell?s last year overestimated reserves and involves building the world's largest liquefied natural gas plant and 1,600km of pipelines.

Malcolm Brinded, head of Shell's exploration and production division, called the rise in costs "disappointing" and said it was due to factors such as currency movements, rises in steel prices, problems with getting its onshore pipelines across rivers and the right environmental licences. "It is now clear that the Sakhalin project's budget and schedule were significantly underestimated."

Shell owns 55% of the project with Japan's Mitsubishi holding 20% and Mitsui the rest. Last week Shell informed Russian gas firm Gazprom, which eyes to acquire a quarter of the project, that costs would rise.