Russia's ambassador to Japan said on Wednesday that Royal Dutch Shell's $20 billion (10.6 billion pound) oil and gas Sakhalin 2 project, which hit new environmental hurdles this week, could start operating early if Gazprom joined it.

Seeking to quell fears over late stage objections to the project, which is due to supply large amount of natural gas to Japan from 2008, Ambassador Alexander Losyukov said Sakhalin 2 would move ahead and that he expected Shell to complete talks over selling a stake to state gas giant Gazprom by year's end.

He said Gazprom was a state run company and if a state run company joined the project it may be able to operate earlier.

Russia did not mean to stop the project, he said. It would be completed and fuel would be delivered to the buyers, he added.

But the natural environment could not be sacrificed, he said.

On Monday, Russia revoked environmental approvals for Sakhalin 2, the latest blow to hit one of the world's biggest energy projects and a move seen by many analysts as a Kremlin effort to grab a bigger slice of the project.

Losyukov, speaking in Russian translated into Japanese, said about half of 60 environmental violations remained unresolved.

Gazprom said on Tuesday that talks on a year old deal to take 25 percent stake in Sakhalin 2 via an asset swap had stalled for months due to Shell's cost overruns.

But Losyukov, through the translator, said a deal may be sealed before the end of the year, with Gazprom taking 20 percent. It was not immediately clear why the terms of the swap would have changed from last year.

Losyukov reiterated that Russia would respect the production sharing agreement for Sakhalin 2 even though the 10 year old PSA was not satisfactory in today's market environment.

Shell has a 55 percent stake in the project, while Japan's Mitsui & Co. Ltd. <8031.T> and Mitsubishi Corp. <8058.T> own a combined stake of 45 percent.

Sakhalin 2 will have a capacity of 9.6 million tonnes per year of liquefied natural gas (LNG) and is due to begin exports in 2008. At least half of its output has been earmarked for Japanese buyers, enough to meet about 6 percent of imports.

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