The Observer (UK): Trouble in the pipeline: Nick Mathiason on how Shell's controversial Pacific island project has very shaky foundations: “It is the world's most expensive oil and gas pipeline. Costing over $12 billion…”: “With its reserves dwindling, Shell, which controls 55 per cent of the project, is hoping to get lenders to back it this year. The project is already $2bn over budget and every delay risks escalating costs.” (ShellNews.net) 20 March 05
Sunday March 20, 2005
It is the world's most expensive oil and gas pipeline. Costing over $12 billion, it is expected to generate revenues of $3.5bn when the fossil fuel pours through it in two years.
But in pictures leaked to The Observer, energy giant Shell's Sakhalin-2 project is using methods which seem rudimentary. Sakhalin-2 will take liquefied natural gas from Siberia to Sakhalin, a small Pacific island off the east coast of Russian, and then onto Japan and China. The pipe will not stay on bricks for too long. Eventually it will be buried under soil.
But the 523,000 Sakhalin islanders are increasingly concerned that they will not receive any money from the project. The 6 per cent of revenues due to the region under a production-sharing agreement has now been seized by the Russian state. More seriously, they fear the potential for oil spillages and the effects of construction will ruin their fishing industry, which accounts for 30 per cent of the Sakhalin economy. Islanders are using the courts and threatening blockades to stop a giant jetty being built.
For Shell these problems are just the latest setback in a controversial project essential to its financial future. With its reserves dwindling, Shell, which controls 55 per cent of the project, is hoping to get lenders to back it this year. The project is already $2bn over budget and every delay risks escalating costs. But a report by a world-renowned collection of whaling experts says the present route of the pipeline risks the extinction of the Western Pacific Grey Whale.
There is speculation that the European Bank for Reconstruction and Development will not fund the project unless Shell's Sakhalin Energy Company changes the pipe's route. Shell acknowledges there are problems with the route and will decide what to do within weeks. Meanwhile Sakhalin islanders say that the construction of a massive jetty to be used by oil and gas tankers will deposit 2.3 million cubic metres of spoil, or waste material, in a shallow bay where they trawl for crabs, shrimps, scallops and sea urchins.
The fishermen want Shell to dump the spoil in deep waters to the east of the island, a more expensive option. Shell maintains that the spoil will be buried at depths of 50 metres and does not contravene environmental standards. Islanders say the construction of the pipeline is already depositing sediment into streams where salmon swim upstream to spawn.
This could change breeding habits and ruin livelihoods, as fishermen are given licences on specific areas of streams and rivers. In addition, critics fear pipe technology employed by Shell will not withstand seismic activity, which is prevalent in the area.
Meanwhile the mayor at Korsakov, where Shell plans to build a huge liquefied natural gas plant on 492 hectares of land, will tomorrow take the Shell consortium to court in a bid to get it to pay more rent. It currently pays just 5p per square metre - the going rate in Sakhalin is £1.15. Dmitry Lisitsyn, of Sakhalin Environment Watch, says: 'If Sakhalin Energy amends this project to make it sensitive to the fishing industry, to whales; if it meets our demands we will give it the green light. We are not against the project on principle.'
'Shell cannot control its contractors on Sakhalin,' says James Leaton of WWF. 'If the construction methods used on the island happened offshore it could mean the extinction of the gray whales. At present this project puts critical habitats in serious danger. No signatory of the Equator Principles [for sustainable bank lending] should be involved.'
http://observer.guardian.co.uk/business/story/0,,1441670,00.html
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