energytribune:“Wag the Dog” in Russian

Ecological violations are the new weapons being used by the Putin regime against Russia’s oil and gas industry. In October, Oleg Mitvol, deputy head of Rosprirodnadzor (Service for Supervision of Natural Resource Usage), flew to Sakhalin to investigate alleged ecological damage at the Sakhalin-2 project. Rumors quickly began to surface that Mitvol was claiming that Shell had caused irreparable ecological damage near Sakhalin, to the tune of some $50 billion.

As we posited earlier in ET and as most observers believe, the ecological claims against Shell at Sakhalin were cooked up to give the Russian government leverage in re-negotiating the production sharing agreement governing Sakhalin. That conclusion gained credence a short time later, when the Rosprirodnadzor tried to divert attention away from Sakhalin and toward Lukoil’s operations in northernmost Russia.

That action took place at Lukoil’s operations in the Komi republic in mid-October. It took a special committee and Oleg Mitvol only two days to conclude that Lukoil violated all of the possible ecological norms. Excessive idle wells, insufficient production levels, contamination of local rivers, unauthorized woodcutting, unlicensed installation of drilling rigs, and bad soil remediation were some of the major offenses. According to Mitvol, that inspection will cause Lukoil to lose 11 field licenses in Komi if the violations are not corrected. Of course, nobody believes that Lukoil is innocent. But the way the news was presented is plainly farcical.

Indeed, most Russian oil producers could be charged with exactly the same violations. According to Russia’s respected Expert magazine, about 20 percent of all Russian oil wells are idle. For Rosneft the number of inactive wells is 16 percent; for YUKOS, 30 percent; Gazpromneft, 15 to 20 percent; Surgutneftegaz, 10 percent; TNK-BP, 40 percent; Tatneft, 18 percent; Slavneft, 20 percent; and Lukoil, 17 percent. In theory, those high percentages would put all these companies at risk of a crackdown by Mitvol and his crew. Most of these inactive wells are undesirable to drill or reactivate because their production rate is insignificant and thus uneconomical.

We believe that Lukoil will not lose its operating licenses in Komi. The state intentionally chose Lukoil in a weak effort to show that it was not picking on Shell. To us, the Lukoil investigation looks like a “Wag the Dog” type of move to placate a few gullible observers. Meanwhile, the state is wielding a new weapon in its effort to corral oil and gas producers.

Posted on Oct. 18, 2006

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