The Ministry of Natural Resources annulled Monday its approval of a 2003 environmental study on Sakhalin II after prosecutors protested the original endorsement.
Russia's environmental watchdog, the Federal Service for the Oversight of Natural Resources, yesterday said work on the project should be suspended until specific engineering proposals are in place on each of the pipeline's sections.
"I do not see any reason to suspend the implementation of the [Sakhalin II] project until a revision of the feasibility study is complete," Kirill Androsov said.
The Sakhalin II project, which is run by the Sakhalin Energy Investment Company and controlled by Royal Dutch Shell, has had a history of controversy since its inception. In the latest challenge to its viability, development costs have reportedly doubled to about $20 billion as global commodity prices have risen.
"The state will conduct a new assessment, and the government will decide whether to include or exclude additional expenses in the revised feasibility study," Androsov said.
The suspension would jeopardize contracts with Japan, South Korea and the United States on LNG supplies, which are due to go into effect in 2008.
Japan's Chief Cabinet Secretary Shinzo Abe, who is considered a leading candidate to replace Junichiro Koizumi when the new leader of Japan's ruling Liberal Democratic Party is elected today, said Tuesday the suspension of Sakhalin II could have a negative impact on Russian-Japanese relations.
The Sakhalin-II project comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant and an LNG export terminal.
The two fields hold reserves totaling 150 million metric tons of oil and 500 billion cubic meters of natural gas.