Russia's environmental watchdog has launched court action against oil giant Shell over its alleged failure to observe ecological regulations at the Sakhalin-2 drilling project in the Western Pacific.
Rosprirodnadzor said in a statement that work at the world's biggest liquefied natural gas (LNG) project would have to stop if a suit its filed at a Moscow court was successful.
Sakhalin-2 has faced increasing opposition from Russian authorities, and analysts see it as a broader move by the Kremlin to tighten its grip on the strategic energy sector at a time of record high oil prices.
But analysts note that it will be tough for the Kremlin to change the terms of Sakhalin-2, an internationally recognised production-sharing agreement. They also note that increased pressure from Russia comes amid attempts by gas monopoly Gazprom to secure 25 per cent in the project.
Adam Landes from Renaissance Capital brokerage said Shell had already agreed to sell a stake to Gazprom and therefore the pressure was unnecessary as it was damaging the country's investment climate.
"If this pressure is politically motivated and aims at bringing Gazprom into the project I don't think Shell needs to be convinced in such a way," he said.
Rosprirodnadzor has already ordered the suspension of construction of onshore pipelines and requested criminal charges against a contractor working for the project.
Shell has stopped building two onshore pipelines and says it will restart only after addressing differences with the Russian authorities.
A statement from the Sakhalin-2 project expressed surprise at the Rosprirodnadzor action.
"The documents received by the company as a result of a number of recent Rosprirodnadzor audits make it clear that none of these deviations can serve as credible grounds for invalidation of the state environmental approval of Sakhalin-2 phase 2 project," it said.
Sakhalin's LNG plant will have capacity of 9.6 million tonnes a year, the world's biggest.
Industry analysts say the pressure may cause yet more delays to the first LNG delivery, which was re-scheduled to summer 2008 after Shell was forced to revise its costs estimates for to $20 billion from the previous $10 billion.
Building work is already 75 per cent complete and more than four fifth of future LNG output is presold to customers such as Japan's Tokyo Electric.
Royal Dutch Shell has a 55 per cent stake as the operator of the project. The other shareholders are Japan's Mitsui with a 25 per cent stake, and Mitsubishi with 20 per cent.
The latest move has increased speculation that the two Japanese stakeholders will eventually sell part of their holdings to Shell if agreement is reached to sell Gazprom 25 per cent or more out of its current holding.
"A share sale is not necessarily negative for Mitsui and Mitsubishi as Gazprom's participation would give the project political support," said Yasuhiro Narita, analyst at Nomura Securities.
"But it would be a blow to the two firms' stock prices if they sell their stakes at unreasonably low prices under Gazprom's pressure," he added.