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Russia: Island to Be Turned into Japan's Energy Hub

by Nick Paton WalshThe Guardian
August 25th, 2003

It will be the largest energy project in the world, but ecologists fear that a huge pipeline and three drilling platforms on and around the Russian island of Sakhalin, which borders Japan, may spell environmental disaster. The project is likely to bring a company led by British and Dutch giant Shell hundreds of billions of dollars and the Kremlin $49bn (31bn). Moscow's politicians and oil executives are already counting down to the project's completion in 2007. But ecologists are criticising the "foolish" decision to build the pipeline underground through an active seismic fault in an area considered by many a rare marine reserve.

US ecologists Pacific Environment say the platforms, one of which is already working a few miles offshore from the crumbling northern town of Nogliki, have upset fish and whale breeding, and could "spell extinction for the West Pacific grey whale".

Ecologists also claim local laws have been changed so that the project owners, Sakhalin Energy International Consortium, the company registered in Bermuda by Shell and their Japanese partners for the scheme, can more easily drill for oil - and also dump building waste from constructing a new tanker port - in previously protected areas off the island's shore. The company deny any such changes were made, saying the areas were never classified as protected in the first place.

The campaign group Sakhalin Ecological Watch also fears the pipeline will not withstand the serious earthquakes that regularly hit Sakhalin. It is worried that leaks will destroy river and forest wildlife, and the 1,103 crossings the pipeline makes across the island's river and stream network will radically affect salmon breeding grounds.

Sakhalin Energy accepts the sensors on the pipeline can only measure the loss of 1% of the pipeline's total output, meaning that up to 1,800 barrels of oil a day could leak without being noticed. But it adds that the pipeline was designed to withstand most tremors, often goes under the rivers, and other sensors would see the changes caused in and around the pipeline by such a leak. "We are in business to make money," said a spokesman, "and a 1,800-barrel-a-day leak would be a big loss. We would notice it."

Sakhalin Energy's decision to invest $10bn in the project marked the single biggest foreign investment in Russian history, and was hailed as a sign that foreign companies had lost their fear of the so-called "Red Mafia's" grip on business, and that they finally felt comfortable putting money into Vladimir Putin's Russia.

While the Kremlin insists the money will bring jobs to poverty-stricken Sakhalin, many think the 6% royalty paid by Sakhalin Energy to Moscow on all revenues also influenced Moscow's decision.

Sakhalin Energy is not alone: US giant Exxon is already drilling offshore, and BP is exploring the coastline for reserves. Foreign investment in the island may eventually exceed $30bn.

The projects have thrived on the support of the local administration and Moscow, and will effectively turn Sakhalin into the energy hub for Japan - if not the entire region - over the next decade.

But tragedy struck yesterday when the death of the island's governor, Igor Farkhutdinov, was announced, after the remains of his crashed helicopter were found on the neighbouring island of Kamchatka. Elections will follow, perhaps focusing public opinion on the governor's pet project.

In Nogliki, the remote northern settlement nearest to Sakhalin Energy's planned second drilling platform, public opinion is hardening over how they have yet to reap real benefits from the multi-billion dollar energy complex springing up around them. While Sakhalin Energy is building an airport and improving some roads in Nogliki, locals say their movements have been restricted.

The local fishermen are particularly angry. Most are from a local tribe known as the Nivkhi, a third of the remaining 3,000 of whom are in Nogliki. They say they have been banned from their lifeblood - fishing - because the local government does not want the platform disturbed by fishing boats. The diet of the Nivkhi depends upon fish, without which, they say, they fall ill and their teeth rot. The Nivkhi plan a protest today during which they say they will fish without permission.

Pacific Environment claims the fishing ban constitutes "a form of government-sanctioned discrimination" against the Nivkhi, a breach of the universal declaration of human rights.

When the oil and gas has been extracted and briefly purified at a nearby plant, it will travel 500 miles south in a pipeline to the southern bay of Korsakov. Bulldozers are already ripping up the picturesque beaches of the bay, and have permission to start building a port from September 5, from where tankers will ship oil and liquid natural gas to Japan and beyond.

The big wage packets of foreign oil workers have flooded into the capital Yuzhno-Sakhalinsk, a town that was once a tsarist penal colony. But while entrepreneurs rent hurriedly refurbished flats to British and American oil executives for $6,000 (3,800) a month, locals are feeling the pinch.


"What do the oil companies bring us?", said Natalia Barranikova of Sakhalin Ecological Watch. "Ordinary people get nothing. House prices have gone up three times because of the oil people."

An Sakhalin Energy spokesman said: "There is a general support , maybe support is too strong a word, but in general [locals] have seen an improvement in conditions." He said Sakhalin Energy had not changed any policies because of local protests, but had "altered the focus of our concerns".

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