Sakhalin Energy CEO Ian Craig said while the project had been exposed to cost pressures and the consortium was not satisfied with progress in all areas, it remained confident that the first cargo of LNG would be delivered at the end of 2007.

The cost pressure has been caused by a fall in the dollar, an increase in contractors’ rates, and general uncertainties surrounding developments in the Far East. Sakhalin Energy has prepared revised estimates that are now under discussion with Russian authorities.

By the end of 2004, Sakhalin Energy will have spent around US$5 billion on Phase 2, out of the US$10 billion originally committed and over 40% of phase 2 of the project is complete, Craig said.

Craig acknowledged that Russia’s OAO Gazprom has strongly hinted it wants to take part in Phase 2 of Sakhalin-2.

“There is no agreement today – it’s something the shareholders will resolve in due course,” he said.

“However, I would see benefits of having a Russian partner because of the knowledge and expertise they can bring to the project.”

Currently, Shell holds a 55% stake in the project. The other partners are Japan’s Mitsui & Co and Mitsubishi Corp.