02/22/2005, 00.00
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Will Gray whales stop drilling for oil and gas ?

by Maurizio d'Orlando
Russia, India, Japan, China and Europe are competing for Sakhalin's oil and gas, even using the environment as a card up their sleeves.

Milan (AsiaNews) – The Gray whales of the western Pacific don't know it but they are key players in a big power game that involves important economic, political and military interests. Unbeknownst to them, they have probably become involved in one of the greatest financial scandals in recent history: that of the Yukos oil company.

The IUCN-World Conservation Union* released a report on February 17 detailing how the remaining 100 or so specimens of Gray whales are at great risk of extinction because their breeding grounds around Sakhalin island in Russia's Far East are threatened by a major oil and gas project.

The environmental impact report had been commissioned by the Shell, which leads a consortium set to exploit the Sakhalin II project. Shell Sakhalin Holding, affiliated to the British-Dutch Shell Corporation, holds a 55 per cent stake in the US$ 12 billion project; the other partners are Japan's Mitsui (25 per cent) and Mitsubishi (20 per cent) companies.

The report was required for Shell to receive a US$ 5 billion loan from the European Bank for Reconstruction and development (EBRD**) and the British Department of Trade and Industry (DTI).

According to the IUCN's report, drilling for oil could perturb whale life because of noise, the danger of collision between whales with ships, oil spills, and destruction of bottom feeding grounds. Because of this, it is not yet clear whether funding from the EBRD and the DTI will ever be forthcoming, but what is clear is that without it Sakhalin II, which is largest single foreign investment project in Russia, might never go ahead.

Not if Shell can help it. The consortium it leads stated that the project will go ahead anyway. On Friday, it announced that it signed an agreement to sell Tokyo Gas Company, Japan's largest gas distribution company, 1.1 million tons a year of liquefied natural gas for the next 24 years. This is 70 per cent of Sakhalin II annual capacity.

For oil experts, this is an attempt to elicit support from private banks to replace reticent public lenders like the DTI and the EBRD.

It is also an attempt to counter the effects of the IUCN report which seems to have given such public lenders cold feet.

Other experts however see in the report not so much a warning about the possible extinction of an endangered species but rather a pretext to deny access to readily available and necessary oil and gas supplies to emerging Asia economies.

Three are in fact three projects underway around Sakhalin Island, one of which is scheduled to go on line very soon.

Oil and Natural Gas Corporation (ONGC), an Indian state-owned company, was the first company to confirm its participation in the Sakhalin I project taking a 20 per cent stake.

Other foreign oil and gas companies like Shell, BP and Conoco Philips followed.

Gas is expected to flow by the third quarter of 2005 with crude oil beginning in January 2006.

Sakhalin I's success snowballed and led to other joint-ventures with Russia in the oil and gas sector.

On January 19, 2005, ONGC, backed by the Indian government—especially by Foreign Minister Natwar Singh—said it would finance the Sakhalin III project as well as Pechora (in Siberia's Artic region just east of the Urals), offering to pick up some of Yukos's former jewels.

The latter are what is left from the agreement reached in January with the China National Petroleum Corporation (CNPC) which took over most of Yuganskneftegaz, Yukos's production subsidiary.

Yukos's bankruptcy, which a Russian tribunal sanctioned back in December, set off a complex diplomatic and strategic scramble among Asian oil consumers to get a slice of the Russian economic pie.


* Founded in 1948 as the International Union for the Protection of Nature (IUPN), the organisation changed its name into International Union for Conservation of Nature and Natural Resources (IUCN) in 1956. In 1990 it was shortened to IUCN -The World Conservation Union.

** The European Bank for Reconstruction and Development was established in 1991 as communism was crumbling to nurture a new private sector in a democratic environment in central and eastern Europe and ex-soviet countries. It is owned by its member/shareholder countries, the European Union and the European Investment Bank.

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