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BBC Newsnight: Oil giants set sights on Sakhalin

BBC Newsnight: Oil giants set sights on Sakhalin

The big oil giants are all hunting for new reserves, but none more so than Shell after it was forced to downgrade its reserves in a financial scandal last year.: “

By Emma Simpson: BBC Newsnight (Broadcast 10.35pm Wednesday 14 Sept 2005

Hurricane Katrina has focused attention on the need to find new supplies of energy.

Shell, the British-Dutch oil company, is building one of the world’s largest oil and gas developments off Sakhalin island, in the Russian far east.

The big oil giants are all hunting for new reserves, but none more so than Shell after it was forced to downgrade its reserves in a financial scandal last year.

They’re now banking on this inhospitable corner of Russia, iced over for much of the year, and prone to earthquakes.

Sakhalin lies 9,900km (6,200 miles) east of Moscow. It’s a former Tsarist penal colony, and Soviet military outpost; once off limits to foreigners.

It also has vast quantities of oil and gas, reserves which most other countries could only dream of. But on Sakhalin, there are growing rumblings of discontent.

Shell, operating here as Sakhalin Energy, is in the midst of a huge construction project.

It is building two new production platforms, two 800km pipelines as well as an enormous liquified natural gas plant to turn the fuel into liquid so it can be sent by tanker to energy hungry countries like Japan and South Korea.

Endangered species

The project could bring big profits. But wherever there’s oil there’s usually wildlife. Unfortunately for Sakhalin Energy, they have an endangered species in the middle of their oil and gas field.

We took a boat ride for a rare glimpse of the western gray whale. There are only a hundred or so of them left, and they come here to feed every summer, just seven kilometres from one of Sakhalin Energy’s new production platforms.

These creatures have never had so much attention. Their future safety is one of the main reasons why the European Bank for Reconstruction and Development has yet to agree to continue public financing of the project, a project it has said is not yet fit for purpose.

When we visited this windswept corner, it seemed like there were more scientists than whales – three separate teams were monitoring the mammals’ every move.

‘Major concession’

From a vantage point high above the sea, James Leyton from the Worldwide Fund for Nature (WWF), told me they wanted Sakhalin Energy to delay construction until more research was done.

“If one extra female dies then the species could be finished. We want Shell to take a precautionary approach – there’s no second chance with these whales,” Mr Leyton explained.

“I think there are a lot of things on the line [in terms of] Shell’s reputation; whether they want the extinction of a species on their record and for any banks that consider financing [the project].

“This has huge implications for all project finance as to whether there are any meaningful environmental standards attached to it.”

Sakhalin Energy also has a team in a beaten up old trailer, but full of high tech noise monitoring equipment. The company says it has done everything it can to minimise the risk and disruption. But it’s still working on one big “what if ” – an oil spill under ice.

Sakhalin Energy says it has already made a major concession though – re-routing its pipeline further from the whales.

A price worth paying?

But the controversy isn’t confined to offshore. Sakhalin Energy is under fire for not taking enough care to protect the hundreds of streams and rivers which the pipeline route will have to cross.

Salmon is the island’s most important fish stock and the fish need clean water to spawn in. We were shown one stream where there was nothing to stop the mud sliding into the water.

It’s “bad practice,” according to Dmitry Lisitsyn, a former geologist and head of Sakhalin Environment Watch.

“I’m completely sure that if such a pipeline had been built in Great Britain or America, they would do much better.”

Ian Craig, the boss of Sakhalin Energy, admits mistakes have been made: “I’ll be the first to admit that we haven’t got it right first time everywhere…but there are huge challenges,” he said.

“We’re trying to introduce international best practice with Russian contractors, although they’ve been working to Russian standards, they’re not used to performing in this way.”

I asked Dmitry Lsitsyn surely the development was a price worth paying in the long term?

“It’s not our gas deposits anymore. It was sold and provided to Shell, to supply Japanese and Asian markets. As for revenues, we will get nothing,” he explained.

Today this business is all about scouring for new sources of fuel – pushing the boundaries, to keep our cars on the road.

Sakhalin Island provides an example of the tensions between extracting the fuel of the future and the price that has to be paid.

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