Russia Pushing Forward With Risky Gas Project

by Sergei Blagov

Sakhalin, an island just north of Japan, is believed to have deposits of about 700 million tons of oil and 2.5 million trillion cubic meters of natural gas in its 20,000 square-kilometer offshore belt.

International exploration projects are already under way on the 960-kilometer island with a population of about 600,000.

Now new exploration projects are set to surround the island.

The Sakhalin-2 group comprising leading oil companies has announced it will build the world's biggest liquefied natural gas (LNG) plant on the island by 2006, despite missing a self-imposed deadline that it will first find committed buyers by June.

Yelena Zolotaryova, head of the Moscow-based Sakhalin Energy which is operating the Sakhalin-2 project says there have been positive signals from potential consumers in Japan, South Korea, Taiwan, China and the U.S. Letters of intent are expected by the end of the year, Zolotaryova says.

The new LNG plant is expected to be built at a cost of about $2 billion. Oil is already being produced by offshore platforms. The LNG project would be only a part of an overall spending of about $11 billion on the project.

But it is expected to cost up to $25 billion to tap all known reserves on the shelf. Expenses will be high partly because weather conditions in the Okhotsk Sea are harsh. The waters are icebound for six months in a year.

Sakhalin-2 is only one among a series of ventures planned to tap offshore oil and gas resources around the island. The project is proceeding despite warnings of potential damage to the island's economy based on fisheries and other environmental resources.

Environmental experts say current projects are already polluting the ocean with hard-rock debris, drill-hole waste and workplace sewage. Marine life near production platforms is beginning to ingest toxic chemicals, they say.

Yelena Pashkova, sea projects coordinator in Russia for Greenpeace says oil companies must employ state-of-the-art technologies and engineering solutions to ensure environmental safety. But some firms are cutting costs at the expense of environmental safety, she told IPS.

Sakhalin Environmental Watch, a local non-governmental organization, published a report last month on the ecological consequences of the offshore oil and gas projects. The 50-page report said the offshore projects must be reviewed because they are not complying with environmental legislation.

The report says there are about 300 rare and endangered species in the area which could be threatened by the hydrocarbon projects.

The report points to other dangers. There are plans to build a 600-kilometer pipeline between the oilfields in the northeast and Yuzhno-Sakhalinsk in the south of the island. Gas through this could be used to supply Japan. But the report says international consortiums should address the major danger of earthquakes in the region.

Sakhalin island is among the most seismically active areas in Russia with a potential for 8.0 Richter-scale earthquakes. In 1995 a major earthquake destroyed Neftegorsk in the north of Sakhalin, killing about two-thirds of its 3,000 inhabitants.

The surrounding sea has thick drifting ice most of the year. The question how oil platforms and tankers will function in these conditions has never been addressed, the Sakhalin Environmental Watch report says.

But the Sakhalin rush continues. ExxonMobil Corp., the world's largest oil producer confirmed last year that it will invest up to $4 billion over the next five years in oil projects around Sakhalin. Production of oil under some of the older projects is due to begin in 2005.

The older projects have slowed down since the mid-nineties as investors negotiated tax breaks under a product-sharing agreement. About $600 million has been spent on exploration under these projects. The new project is now set to begin as the old ones also get going.

Greenpeace had achieved a halt to seismic testing in September last year after a series of explosions in the feeding ground for whales. But new exploration projects cleared will include seismic surveys and drilling. Explosions and the threat to marine life are likely to continue.