first ever production-sharing agreement (PSA) with the Russian Federation. Sakhalin Energy will build two 800-km pipelines running from the northeast of the island to Prigorodnoye (Prigorodnoe) in Aniva Bay at the southern end. The consortium will also build, at Prigorodnoye, the first ever liquefied natural gas (LNG) plant to be built in Russia. The oil and gas are also bound for East Asian markets.
Sakhalin II has come under fire from environmental groups, namely Sakhalin Environment Watch, for dumping dredging material in Aniva Bay. The groups were also worried about the offshore pipelines interfering with the migration of whales off the island. The consortium has (as of January 2006) re-routed the pipeline to avoid the whale migration. After a doubling in the projected cost, the Russian government threatened to halt the project for environmental reasons. There have been suggestions that the Russian government is using the environmental issues as a pretext for obtaining a greater share of revenues from the project and/or forcing involvement by the state-controlled Gazprom. The cost overruns (at least partly due to Shell's response to environmental concerns), are reducing the share of profits flowing to the Russian treasury.
In 2000, the oil and gas industry accounted for 57.5% of Sakhalin's industrial output. By 2006, it is expected to account for 80% of the island's industrial output. Sakhalin's economy is growing rapidly thanks to its oil and gas industry. By 2005, the island had become the largest recipient of foreign investment in Russia, followed by Moscow. Unemployment in 2002 was only 2%.
As of 18 April 2007, Gazprom has taken a 50% plus one share interest in Sakhalin II by purchasing 50% of Shell, Mitsui, and Mitsubishi's shares
