The European Bank of Reconstruction and Development (EBRD) will not be resuming negotiations on financing the US$20bn Sakhalin II project, via mutual agreement with Gazprom and other shareholders of the Sakhalin Energy Investment Company (SEIC).

The decision was reached following significant changes made to SEIC’s shareholder structure at the end of last year. This prompted the EBRD to withdraw from active consideration of the project, despite having worked on it for over five years.  All parties have now reached the conclusion that ERBD financing is unfeasible, given the timeframe of the project.

In December 2006 the Russian firm Gazprom acquired a majority stake in SEIC, after coming to an agreement with the previous majority stakeholder Shell to pay US$7.5bn for a 50%-plus-one-share stake in the project. Shell and the other two Japanese shareholders Mitsui and Mitsubishi saw their stakes in the US$20bn project significantly reduced. Russian authorities had claimed Shell had broken certain environmental regulations.

The original shareholders approached the EBRD for financing in 2001.Since then, the EBRD has worked alongside SEIC to ensure that the project would meet EBRD’s environmental requirements.

In 2006 the EBRD announced that the project had met sufficient requirements to enable it to conduct a consultation process in Russia, Japan and London, and has continued to underline its commitment to ensuring high environmental standards. The bank has worked with Sakhalin Energy to ensure pipelines were rerouted to avoid disturbing the feeding grounds of rare Western Gray whales.

Despite the EBRD’s withdrawal from the project, talks over the financing of Sakhalin II are continuing, with a decision expected to be made in the coming months. The project is due to be finished in 2008, and is set to be the largest integrated oil and gas field in the world.