The energy giant blamed currency swings, higher contractor fees and rising commodity prices for the development’s soaring costs.

The Sakhalin II project, exploiting gas found off Russia's eastern coast, is a key project in Shell's exploration strategy.

It aims to develop new sources of oil and gas to replace reserves lost in recent years. Shell has estimated that estimated that 1 billion barrels of oil can be recovered as well as 17.3 trillion cubic feet of gas.

Shell owns 55% of the Sakhalin Energy Investment Company (SEIC) which is responsible for constructing the gas facility on the island of Sakhalin. The company signed a memorandum of understanding with Russian gas giant Gazprom this month to swap 25% of SEIC shares for half of a Siberian field.

Other SEIC stakeholders are held by Japanese firms Mitsui, 25%, and Mitsubishi, 20%.

Sakhalin II is the second phase in the Sakhalin gas and oil development, which began in 1996 and saw the first petroleum produced three years later. The project involves the construction of offshore platforms and pipelines to a new LNG plant and export terminals on the island.