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Journalism of Courage
For more than a decade, Dmitri V. Lisitsyn waged a lonely, losing battle to protect the local salmon and grey whales from the world8217;s large oil companies, which are turning bucolic Sakhalin Island into an industrial hub.
Now, Lisitsyn suddenly has the full support of an unlikely environmental champion: the Russian government.
Unlike Hugo Chavez of Venezuela or Evo Morales of Bolivia, who recently sent in his army to seize natural gas fields, the Kremlin is using more sophisticated methods.
Just now, Exxon Mobil is clashing with the Kremlin over whether it can send out its first tanker of crude oil from the 17 billion Sakhalin 1 project. Exports were supposed to start the first week of October, but on September 28, Russian officials warned that shipments would be halted for health and safety checks. Exxon Mobil insisted the tanker would set off as planned.
The tanker is to take oil from one of the world8217;s newest energy provinces to Asia; some of the oil will also make its way to California, helping to diversify supply away from the Middle East, a goal of the Bush administration8217;s energy policy.
Another target is Shell and its 20 billion project, Sakhalin 2, which represents the largest foreign investment in Russia and is the world8217;s largest combined oil and natural gas development. Authorities have also singled out BP fields in Siberia and a project of the French company Total in northern Russia.
Russia is now using environmental regulation, oil analysts say, to weaken the negotiating positions of the country8217;s largest foreign investors, in the same way it used the tax code to weaken Yukos, once Russia8217;s largest private oil company.
Since Rosneft, a state-run company, took over Yukos8217;s oil production, the Kremlin has raised its control over the country8217;s energy assets, with wide implications for the world supply.
8220;The official rhetoric is getting steadily more shrill and does not bode well for the future of foreign oil companies in Russia,8221; the director of Goldman Sachs8217;s Moscow office, Rory MacFarquhar, wrote in a note to investors recently. 8220;We continue to believe that the aim of this campaign is to force the foreign companies to accept Russian state companies as equal or even majority partners in their projects, possibly for no compensation.8221;
Shell8217;s project is now in limbo because regulators revoked a permit for Sakhalin 2, a move that threatened to idle 17,000 workers. That revocation was suspended for a second environmental review, scheduled to be completed on October 25.
Regulators this fall are pressuring all five large Western oil investments in Russia in which the government does not have a controlling stake: Sakhalin 2; Sakhalin 1; BP8217;s venture, TNK-BP; Total8217;s Kharyaga field; and the Caspian Pipeline Consortium, which exports Central Asian oil across Russian territory.
Even Nezavisimaya Gazeta in Moscow noted this summer in an article it was 8220;open season8221; on foreign energy investment.
Oleg L. Mitvol, deputy director of the environmental watchdog agency Rosprirodnadzor, recently led journalists, diplomats and conservationists in a tour of Shell8217;s project where he pointed angrily at a muddy hillside on pipeline route. Claiming that Shell8217;s operating company, Sakhalin Energy, was allowing erosion into salmon streams, Mitvol accused the company of dumping dredge material into a bay and cutting down trees in a park. He said Shell could face 50 billion in fines and fees if it wanted to remain in Russia. He also threatened to 8220;open a criminal case for every tree they cut down.8221;
Greenpeace, the International Fund for Animal Welfare, and Sakhalin Environment Watch 8212;Lisitsyn8217;s group 8212; support Mitvol, which they say echo complaints they have raised for years with little response from the government, until now.
Sakhalin Energy denied the claims made by Mitvol: 8220;Although the project has faced environmental challenges, the company firmly believes that these have been fully addressed.8221;
It was a decade ago that Russia first negotiated the production-sharing agreements that govern the oil projects on Sakhalin with Shell and Exxon. At that time, oil prices were hovering around 15 a barrel. Under those agreements, the government does not tax the companies but gets a share of the oil, only after the operators recoup their initial investments.
During the past year, Shell doubled its cost estimate to 20 billion and Exxon Mobil raised its estimate by 30 per cent, to 17 billion, citing higher prices for steel and an appreciation of the ruble. In both cases, the new cost estimates push back by years the government8217;s profits. Not surprisingly, the government has rejected these estimates 8212; hence the conflict.
Meanwhile, the Russian company Gazprom is negotiating to buy 25 per cent of Shell8217;s project, but those talks have not gone well. Shell announced the cost increase only in July 2005, just a week after signing a preliminary asset swap pact with Gazprom.
Gazprom, which is seeking a monopoly on exports from Russia to Asia, wanted a veto on the board. But just days before the deal was signed in July, Shell and its Japanese partners, Mitsubishi and Mitsui, changed the charter, raising the percentage of stock required for a veto, without informing Gazprom.
Separately, regulators are investigating the 17 billion Exxon Mobil project on Sakhalin and threatened to revoke the license for an 18 billion gas field in Siberia being developed by BP8217;s Russian joint venture, TNK-BP, citing environmental shortfalls.
8220;The environmental weapon puts pressure on the operators and at the same time defends a noble cause,8221; said Vitaly V. Yermakov, research director for Russian and Caspian energy at Cambridge Energy Research Associates. 8220;In chess, every good move should be both offensive and defensive. Russians are very good chess players.8221;
