Sakhalin Oil Development
6/16/95
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Sakhalin oil development watch page 1
Development Watch
16 June 1995
OIL EXPLORATION ON THE NORTHEASTERN
SAKHALIN SHELF --
ENVIRONMENTAL AND SOCIAL IMPACTS
by Friends of the Earth-Japan (FoE-J)
Contents:
1. Executive Summary
2. The Sakhalin Shelf Projects
3. Fish or Fuel?
4. Oil and Gas for Local Needs or for Export?
5. The Pipelines
6. Voice of the Citizens
7. Rich Wetlands to be disturbed
8. Recommendations for change
Note: This report was prepared as part of FoE-J's Siberian Hotspot
project. Information may be quoted with credit to Friends of the
Earth Japan. We have made every effort to provide correct and
accurate information, however we appreciate corrections,
suggestions, and additions from readers.
____________________________________________________
I. EXECUTIVE SUMMARY
One of the most controversial industrial developments planned for
Sakhalin is the exploitation of oil and gas reserves on the north-
eastern shelf. International plans to develop shelf reserves
threaten ecosystems all around the Okhotsk sea region (on the
Magadan and Kamchatka shelves), though on Sakhalin plans are
further developed than elsewhere. On June 15, the Russian
Parliament passed production sharing legislation; the Sakhalin
projects are now a full go ahead.
1.1 Major multinational investment
Local and federal governments are selling off rights to exploit
Sakhalin's estimated 1.5 billion barrels of offshore oil reserves
to western companies, who are eager to export crude oil to growing
Pacific rim economies, particularly Japan and South Korea. Some
of the world's largest companies including Exxon, Texaco,
Marathon, Mitsubishi, Mitsui, Mobil, and Shell are developing 4
investment projects totaling over U.S. $20 billion. Project plans
include constructing a large off-shore complex of pipelines and
drilling platforms, developing on-shore storage facilities,
expanding the region's transportation infrastructure, and laying
oil and gas pipelines through the center of the island to the
southern tip.
1.2 Threat to fragile ecosystems
It is clear that Sakhalin needs economic development, which the
oil developments could stimulate. However, many island
residents fear the massive scale of the oil development projects
could seriously damage the region's rich and fragile northern
ecosystems, some of which have already been affected by the
existing on-shore oil and gas complex. Sakhalin Island, the
Kurile Islands and the Sea of Okhotsk form a region of immense
natural wealth. 43% of all bird species and 94% of all whale
species in the former Soviet Union live in or migrate to the
region from Japan and further afield.
1.3 Valuable wetlands and fisheries to be disturbed
The northeastern wetlands are of particular natural value, and
especially important for migrating birds. The Okhotsk Sea, one
of the most productive seas in the world, provides over half of
Russia's annual catch and is a major source of fish for Japanese
markets. Sakhalin's rivers teem with valuable red salmon.
Fishing industry representatives are concerned that oil
exploration, platform and pipeline construction, and
transportation will damage important marine and riparian fish
breeding grounds. Ecologists have voiced concern about the
projects; claiming that they will damage critical wetland habitat
for rare migrating birds, pollute off-shore feeding grounds for
whales and dolphins, and open up pristine forest ecosystems for
logging.
1.4 Harsh natural conditions - an engineering experiment
The region's natural conditions are far more hostile than any
other region where these oil companies have drilled before (even
Alaska), with thick pack ice, ice sheers, earthquakes and tidal
waves. While boasting of extensive experience in Alaska, the
companies admit that these developments are an engineering
experiment. A thorough environmental assessment of these
conditions has not yet been completed. According to the
special Moscow Commission's critique of the Sakhalin II project
initial environmental assessment: "The characteristics of the ice
have not been studied properly Q stability, structure, reaction to
pressure, temperature, salinity."
1.5 Political and economic instability - ecology overlooked?
While the oil developments offer the possibility of economic
improvement on the island, Russia's political and economic
instability, and the lack of a firm base of legislation, are cause
for much concern. There is no money in the Russian federal and
regional budgets to ensure proper environmental assessments are
carried out, and some fear that the western investors themselves
will not complete adequate assessments, unless pressured.
1.6 Local needs may not take priority
The oil projects will not create a significant number of jobs for
Sakhalin residents. Some fear that the Sakhalin citizens may not
enjoy significant economic or social benefits, while local
economies such as the fishing industry may suffer. Exports to
lucrative Pacific Rim markets are likely to take priority over
local needs and development of the natural gas reserves may be
delayed in favor of higher short-term profits gained from oil
extraction. Replacing the Russian Far East's coal-fired power
plants with natural gas is critical to the region's ecology.
1.7 Indigenous Peoples lifestyles threatened
The Nifkhi and Oroki, Indigenous peoples who live in northern
Sakhalin, were not consulted before projects were approved at
federal level, although their lands will be affected by the
developments. Pollution of land and rivers, and destruction of
reindeer pasture land due to the oil industry, threaten their
traditional lifestyle and economies, based on fishing, hunting
and reindeer herding.
1.8 Focus on small-scale local development
Critics of the planned oil projects maintain that Sakhalin's
ecology and economy would be better served by directing
Western technology and expertise to small-scale development
projects, including upgrading existing pipelines and
implementing clean technologies at refineries in the Russian Far
East, that cater to local fuel needs rather than focusing on
export markets. Such small-scale projects would be true
'sustainable development' and would significantly reduce damage to
Sakhalin's wetlands, fisheries, and forests.
2. THE SAKHALIN SHELF PROJECTS
2.1 Background
The northern region of Sakhalin Island (Okhinskii and Noglikskii
districts) serves as the oil production center for the Russian Far
East (RFE). On-shore oil reserves have been under exploitation
since 1921. More than 4,000 onshore wells have been drilled on
Sakhalin. About 40 fields are currently in operation, and
constitute 75% of total RFE oil production, although the industry
is now in decline. Oil is transported by pipeline to the refinery
at Komsomolsk-on-Amur about 550 km away on the mainland. There
have also been several gas discoveries in the Aniva basin in the
south of the island, where the gas is used locally. (Oil and Gas
Journal, 1993).
2.2 The Sea of Okhotsk shelf reserves
Since the mid 70's, oil companies have shown interest in the off-
shore oil and gas reserves of the north-eastern shelf. 4 Sakhalin
oil development projects are currently preparing to exploit the
160 mile stretch of coastal shelf from the Okha district in the
north to below Lunskii gulf towards the south. Proven oil
reserves are estimated at 1.5 billion barrels, and the fields are
situated in a strategically perfect position on the Pacific Rim.
So, although foreign companies have the technology, for example,
to help Russians stimulate the wells of Western Siberia to resume
production, it is initially cheaper and potentially more
profitable for them to develop new fields on the shelves of the
Russian Far East (Sakhalin, Magadan, Kamchatka), though
threatening ecosystems which remain to a large extent pristine.
2.3 Sakhalin II project
The furthest advanced of the four projects is Sakhalin II,
controlled by the "Sakhalin Energy" consortium of Marathon (the
operator, with 30%) ; McDermott (20%); Shell (20%); Mitsui (20%)
and Mitsubishi (10%). The consortium plans to develop the Lunskoe
and Piltun-Astotskoe fields. Proven reserves from these two
fields are estimated at more than 100 million tons of oil and more
than 400 billion cu m of gas. Oil and gas will be transported
down the center of the island by pipeline and exported to Japan
and South Korea. Total investment is estimated at US $10 billion.
2.4 Sakhalin I project
The Sakhalin I project, is controlled by Exxon (project operator)
with 30%, Sakhalin Oil Development Corporation [SODECO] - a group
of Japanese firms led by Japan National Oil Corporation (30%), and
Russian partners "Rosneft" and "Sakhalinmorneftegas" (40%). The
former State monopoly "Sakhalinmorneftegas" is now a semi-
privatised company and still controls the oil and gas industry on
the island. The project - to develop Chaivo and Odoptu fields
(discovered in the late 1970's) and Arkutun-Dagi field - expects
to produce up to 28 million tonnes of oil at an estimated cost of
$15 billion.
2.5 Sakhalin III and IV projects
The Sakhalin III project (4 blocks including East Odoptu and
Kirinskii fields) is controlled by Exxon, Mobil and Texaco.
Tender applications for the Sakhalin IV project (2 large fields to
the north-west of the island) have not yet been assessed.
2.6 Key players
The "final" agreement on Sakhalin II was signed in Washington
last June by three parties from the Russian side: Sakhalin
Governor Krasnoyarov, Prime Minister Chernomyrdin and Yuri
Shafranik, Russia's Energy minister (Russian Far East Update,
1995). Other key players are the Sakhalin local administration,
former state-supported oil and gas enterprises, President Yeltsin
himself, the Russian State Duma (or Parliament), and federal
and local ecological authorities (Russian Far East Update, 1995).
The agreements between U.S. vice-president Al Gore and Russian
Prime Minister Chernomyrdin have reportedly played an influential
role in development plans for Sakhalin's oil.
2.7 Production Sharing legislation passed on June 15
The Production Sharing Agreement legislation just passed in the
Russian Duma. Work can now begin. Ecologists believe that
legislation should not have been passed until satisfactory
environmental assessments were completed for the projects.
2.8 Weak implementation of legislation in Russia
In Russia today, a major stumbling block for both foreign investor
and ecologist is the absence of a strong legal foundation in the
country. Ecologists fear that western companies may be tempted to
take advantage of Russia's flexible and shifting legal structure.
The companies have already exploited one legal loop-hole. Russian
federal law forbids the discharge of drilling fluids and cuttings
directly into the sea (permitted by Western federal law if
discharges pass rigorous tests), but the companies are going ahead
with "experimental" explorations, using western methods of testing
and directly discharging into the sea. While discharging tested
fluids into the sea is arguably better than dumping them on land,
the ability of western companies to by-pass the Russian legal
system is of great concern.
2.9 the Neftegorsk earthquake
The Neftegorsk earthquake of May 28th 1998 raised the concern
about the dangers of oil extraction in an earthquake zone. The
main oil pipeline from Okha to Komsomolsk-on-Amur ruptured in
three places, while 16 cracks appeared in smaller branch pipelines
including the line from Neftegorsk to Okha. Many of these are
underground and as much as fifty thousand cubic meters of oil may
have leaked into the surrounding sensitive marshland. However,
the ecological situation of northern Sakhalin after the quake is
"difficult but not catastrophic" according to the Committee of
Ecology. But a spill at sea will be much more difficult to clean
up, and could destroy the marine and wetland ecosystems of this
fragile northern region. The oil companies have still not
established what technology they will be using to combat the
effects of a possible quake up to 10 on the Richter scale, as
demanded by the local Committee of Ecology and the Moscow Special
Commission, set up to assess the companies' environmental
assessments.
3. FISH OR FUEL?
3.1 Fishing - Sakhalin's major industry
Fishing is the main industry on Sakhalin, constituting one third
of the island's economic activity and employing over 50,000
people. Marine fisheries will be affected by seismic explosions,
boring, and spills at sea. An accident could devastate marine
ecosystems, as was the case with Exxon Valdez in Alaska. This
could be catastrophic for Russian and foreign fishing fleets which
operate in the southern Okhotsk Sea. Sub-Arctic temperatures will
slow regeneration of the fragile ecosystems and hinder clean-up
efforts.
3.2 Pipeline threatens spawning grounds
The planned pipelines will be constructed from Katangli in the
northeast, right down to Prigorodnoe in the south, crossing more
than 800 rivers and streams. Soil erosion due to road and
pipeline construction will affect important natural spawning
grounds. Loss of these spawning grounds, already disturbed by
logging of the islands forests, will be a serious blow to the
local people from both an economic and ecological point of view.
Again, adequate environmental assessments have not been completed.
3.3 Inadequate environmental assessments
"We have to decide which is more important - our fishing industry
or the oil developments," says Dr. Galina Moiseichenko, of TINRO,
the Institute of Fisheries and Oceanography, Vladivostok, which
has conducted extensive studies of the Sakhalin shelf. Although
the consortium insists it is early to be developing more detailed
environmental assessments, ecologists maintain that a full
environmental impact assessment is essential before details like
the production sharing agreements are even discussed. According
to the Moscow Commission critique, "in the TEO there is: (a) no
study of the spawning grounds of the rivers the pipelines will
cross. There is no indication of where these important spawning
grounds are; (b) no agreement about halting work on construction
during the spawning and the migration of fish; (c) no analysis of
the possibilities of an accident, no detailed analysis of the
methods to be used to clean up; (d) no assurance by the consortium
to pay damages to the fishing industry for any destruction caused
to the river or marine fisheries."
4. OIL AND GAS FOR LOCAL NEEDS OR FOR EXPORT?
4.1 Natural gas needed for local power stations
The major priority for Russians is the provision of Sakhalin's
natural gas to Russian Far Eastern regions. Plans laid out by the
oil companies include transformation of the coal-fired power
stations of Yuzhno-Sakhalinsk and Komsomolsk to the cleaner form
of energy, reducing chronic air pollution in these cities in the
winter months. The Sakhalin administration has demanded that at
least 5 billion cu m of gas be made available for local
consumption.
4.2 Natural gas extraction not a priority
But natural gas extraction is not likely to be a priority for the
oil companies, being less profitable. The companies are most
likely to extract the oil first to recoup their investment as
quickly as possible. Thus it could be a long time before the local
people can enjoy a cleaner environment. The local government may
also decide to make a quick short-term profit at the expense of
local citizens' health. Sakhalin's governor Evgenii Krasnoyarov
objects to using gas from the Sakhalin shelf for heat and
electricity on Sakhalin. "He wants to liquefy it and sell it
abroad." (Yuzhno-Sakhalinsk TV, 1993).
4.3 Is it profitable to supply local markets?
Development of Sakhalin's off-shore oil fields could ease the
crippling oil shortages in the Russian Far East. The Russian Far
East needs 20-24 million tons of oil products annually. But
according to latest estimates by the oil companies themselves,
up to 90% of the oil reserves will be exported raw to lucrative
Pacific Rim markets, especially South Korea and Japan. The
companies explain that it is simply not economically feasible to
sell the oil on the local Russian markets. But it is reported
that Dalneft is considering using imported crude oil from the
Middle East to supply the Komsomolsk and Khabarovsk refineries if
Sakhalin cannot supply it!
4.4 Who is to benefit?
The profit will go to the Western oil companies and multinationals
and to a small Russian elite in Moscow and on Sakhalin. Various
research institutes on Sakhalin or in Vladivostok (for example
SAKHNIRO - formerly SAKHTINRO - the Sakhalin Institute of
Fisheries and Oceanography) have signed, or are negotiating,
lucrative monitoring contracts with the oil companies. Faced with
tremendous financial hardship, Russian scientific institutes see
monitor the oil developments as a possibility for survival.
However, scientists may be pressured to compromise their
scientific integrity. Key figures from these institutes, the
federal government, the local administration and ecological
committee have been wooed by the oil companies, for example, with
trips to Houston.
4.5 Citizens may not see the profits
The citizens of Sakhalin were consulted about the developments in
a series of open meetings in four of the main towns to be affected
by the developments (Okha, Nogliki, Korsakov, and Poronaisk)
sponsored by the Yuzhno-Sakhalinsk Administration and Committee of
Ecology, and the oil companies. Most citizens expressed their
support for the developments, seeing in them prospects for job
creation and improved material conditions. But it is unlikely
that local populations will see much of the profit. Few jobs will
be created. The order of steel for the pipeline - approx. 300,000
tonnes - may not go to Russia, but to the west. The people of
Sakhalin do not have the full picture. Media coverage of the
developments is poor and public reaction so far apathetic.
4.6 Companies may not help out local communities
Russians want the western companies to improve the island's
infrastructure, reconstruct water supplies in northern towns,
build medical centers and schools for Sakhalin's citizens. Some
companies have made promises, none of which has yet materialised,
yet they have established a top quality medical facility for
themselves, with a team of planes on constant stand-by to
transport employees home in an emergency.
5. THE PIPELINES
5.1 Pipelines will affect important natural regions
The oil and gas pipelines are being planned from the Piltun-
Astokhskoe field (Katangli), extending down through the centre of
the island to Prigorodnoe in the south, on Aniva Bay. They will
cover 683km and will affect an area approximately 50m wide,
cutting across important natural regions including areas which are
legally protected (for example a protected Hunting Reserve in
Tymovskii region). They will cross more than 800 rivers,
disturbing rich river fisheries. Local naturalists are also
concerned the pipeline will affect the deer migrations in the
northern regions.
5.2 Existing vs new pipelines
Why are the Western companies planning to carve up the island to
lay down new pipelines, when a pipeline already exists from
Katangli, on the north-eastern coast, to the refinery in
Komsomolsk-on-Amur about 550km away on the mainland?
Reconstructing this pipeline and restricting development to the
northern end of the island will supply local Russian refineries,
while preserving the natural ecosystems and commercial activities
of the island and its people. Another variant would also be
beneficial to local citizens. "It would be feasible to direct a
gas pipeline to Vakhrushev [central Sakhalin], where there is a
big coal-fired electric power station. Conversion of this power
station to gas-based fuel would solve the energy problems of
Sakhalin. But this variation has not been considered." (Moscow
Commission, 1993). The Western companies evidently prefer a swift
and convenient export route to lucrative Japanese and South Korean
markets, and are not interested in developing the local Russian
infrastructure.
6. VOICE OF THE CITIZENS
6.1 Public open meetings held
Citizens were allowed to voice their opinions in open meetings
which took place in four of the main towns on the island to be
affected by the developments: Okha, Nogliki, Korsakov, and
Poronaisk. A group including representatives from the Committee
of Ecology, the Yuzhno-Sakhalinsk Administration, the oil
companies, went to these different towns and held four-hour open
discussions. But the turnout was disappointing and the local
people were not made properly aware of the environmental
consequences of oil exploitation in the region.
6.2 Indigenous Peoples not consulted
The traditional economic activities of the Indigenous Nifkhi and
Oroki on the island (fishing, hunting and reindeer herding) will
be severely affected by development of the off-shore reserves.
The Indigenous peoples were not consulted before Moscow approved
the appropriation of their lands, and since then have had no
significant voice in the proceedings. The pipeline will cut
across their land in the north-west, including the village of Val,
home of the Oroki, an ethnic race currently under threat of
extinction due to loss of traditional lands and harsh economic
conditions. Oil and gas extraction and pipeline construction will
threaten their traditional practice of reindeer herding. The
existing Russian oil industry has already destroyed about 70% of
land belonging to the former collective farm "Val", crippling the
reindeer herding tradition. According to Tatyana Roon, an
ethnologist from Yuzhno-Sakhalin's local history museum, the
Oroki see the preservation and development of reindeer herding
as the only chance for reviving their traditional life-style and
culture. "Irrational exploitation of the Piltun-Astokhskoe oil
reserves, situated in the same natural region as the last
remaining undisturbed summer reindeer pastures, will not only mean
the end for reindeer herding but for the Oroki themselves as an
ethnic race."
6.3 Citizens should demand reform
A Russian Federal Law "on protection of the environment" passed on
December 19th 1991, states that the citizens of Russia have the
right to "demand decisions, at administrative or federal level,
about the reduction, suspension or halting of activities, ventures
etc which adversely affect the environment and human health". The
citizens of Sakhalin, including the Indigenous peoples, must use
this legislation to reform development. In Alaska public outcry
about environmental safety, suspended Alaskan oil developments for
5 years and increased the budget from US $90 million to almost $5
billion.
7. RICH WETLANDS TO BE DISTURBED
7.1 Endangered species at risk
The north-eastern shelf region is made up of marshlands, shallow
bays and lagoons, which are extremely sensitive to oil spills and
take a long time to recover, especially in the cold northern
climate. The wetlands of north-eastern Sakhalin provide vital
habitat for a large number of migrating waterfowl including rare
and endangered species such as the spotted greenshank, Steller's
sea eagle, osprey and Aleut tern. The existing oil industry has
already damaged the wetlands. There are regular oil spills in the
bays of northern and southern Sakhalin, many due to human
carelessness. A recent spill destroyed 10,000 birds on a stretch
of north-eastern coastline about 160 km long. Large scale off-
shore developments could destroy more of these wetlands due to the
use of heavy vehicles, and the construction of pipelines, on-shore
storage facilities, petroleum access canals, and board roads.
These wetlands are an important stop-over point along the North-
East Asian Flyway, the migratory route followed by birds from
Japan and as far away as Australia. A possible spill or accident,
will be a major catastrophe, not just for the fragile local
ecosystems but on an international level. "It is well know that
birds suffer most from oil pollution," says ornithologist Vladimir
Zykov, who has already been involved in cleaning up after
localized spills in the north-eastern wetland region, "A large
spill in these lagoons and bays would severely affect the
populations of some of the rarest birds."
7.2 Rich marine ecosystems
The shelf waters themselves harbour a variety of marine life. A
large number of whale and dolphin species live in these waters.
The grey Whale - found in the Red Book of rare and endangered
species - migrates through the region. Exploration activities
[especially seismic explosions], boat and tanker traffic, and
construction pose serious threats to the region.
8. RECOMMENDATIONS FOR CHANGE
(8.1) A full environmental impact assessment (EIA) according to
the strictest standards should have be done BEFORE any production
sharing legislation was passed in the Duma. A full EIA must
include detailed study of Sakhalin's endangered species, their
habitat, and how they might be affected by the oil developments.
The north of Sakhalin has been very poorly studied - nobody knows
the ecological situation in the region, nor the possible effects
these oil developments could have on local ecosystems.
(8.2) Investing companies should finance other environmental
protection initiatives including creating protected areas to
preserve rare and endangered species of flora and fauna.
(8.3) Consult with Indigenous peoples. The Orochi and Nifkhi
must be involved in all stages of the project as their land is
being developed.
(8.4) Focus on small-scale oil development to supply oil and
gas to the domestic market, rather than large-scale projects
geared for the export of oil to consumer countries. The Russian
Far East has critical fuel shortages. The existing coal fired
power plants pollute the environment and should be replaced
with natural gas. Western companies can provide valuable
expertise and the transfer of technology to make oil and gas
extraction and refining sustainable.
(8.5) Upgrade the existing pipeline. This pipeline which runs
from northern Sakhalin to Komsomolsk should be upgraded or
replaced. Land around this pipeline has already been damaged.
This will spare Sakhalin from the pipeline planned to run down
the entire length of the island. The Komsolmolsk refinery can
produce value-added oil products for local markets. Again,
western oil companies can play a tremendous role by upgrading
the existing pipeline and providing cleaner technology to the
Komsomolsk oil refinery.
(8.6) Consumer countries such as Japan, the U.S., and South
Korea should focus on reducing consumption of fossil fuels and
developing alternative forms of energy rather than aggressively
developing new oil fields abroad.
Contact:-: Emma Wilson, Eichiro Noguchi
FRIENDS OF THE EARTH-JAPAN,
4-8-15 Nakameguro, Meguro-ku, Tokyo 153.
tel - 81-3-3760-3644
fax - 81-3-3760-6959
email: foejapan@igc.apc.org
About FoE-J and this project
FoEJ published the Sakhalin Report in October 1994. From June
1995, FoEJ staff member, Emma Wilson, will be based in
Yuzhno-Sakhalinsk, the administrative capital of the island, to
continue work on the FoEJ "Hotspot" project.
FoEJ's "Hotspot" project works with Russian specialists to define
nature protection priorities and protect these Hotspots in the
Russian Far East and Siberia through the dissemination of
information, public advocacy, fundraising, reform of foreign
business investment and trade. In July 1995, FoEJ will publish
the findings of the "Hotspot" study in a comprehensive report.
For 1995 and 1996 FoEJ will work to create new protected areas
in the southern Russian Far East and will be monitoring industrial
developments in the region, including the timber and oil
industries.
FoEJ is a non-governmental, non-profit organization and a member
of the 52 country federation of groups of Friends of the Earth
International, committed to the preservation, restoration, and
rational use of the environment. FoEJ has been active in Japan
for 15 years on a range of national and international
environmental issues.