UK may fund Sakhalin II gas

The Weekend Australian - Travel - - Resources - Jonathan Leake

BRI­TISH tax­pay­ers are ex­pected to of­fer a 500 mil­lion pounds ($1.23 bil­lion) life­line to a trou­bled Rus­sian oil and gas project de­spite warn­ings that it is turn­ing into an en­vi­ron­men­tal dis­as­ter.

The Sakhalin II project, to ex­tract fos­sil fu­els from un­der the freez­ing seas off Rus­sia’s north-east Pa­cific coast, is among the world’s largest and most con­tro­ver­sial en­ergy schemes.

Bri­tain’s Ex­port Cred­its Guar­an­tee De­part­ment (ECGD) has agreed, in prin­ci­ple, to un­der­write it, and John Hut­ton, the sec­re­tary of state for busi­ness, en­ter­prise and reg­u­la­tory re­form, is ex­pected to make a fi­nal de­ci­sion within weeks.

Sakhalin II has an­gered en­vi­ron­men­tal­ists on sev­eral counts. The con­struc­tion of three gi­ant oil and gas rigs is said to have en­dan­gered the last pop­u­la­tion of west­ern Pa­cific grey whales. Two pipe­lines, run­ning al­most the full 944km length of Sakhalin Is­land, north of Ja­pan, have dam­aged pris­tine rivers and forests.

Peter Ainsworth, Con­ser­va­tive en­vi­ron­ment spokesman, says: I am very con­cerned about the ECGD. We should not be us­ing tax­pay­ers’ money to sup­port projects that con­trib­ute to cli­mate change and could help make an en­tire species ex­tinct.’’

The ECGD backed the 10 bil­lion pounds Sakhalin project sub­ject to re­ports on en­vi­ron­men­tal im­pacts and on work go­ing to UK con­trac­tors.

This of­fer was made three years ago when the project was con­trolled by Shell, the An­glo-Dutch oil com­pany. Late last year, how­ever, the Rus­sian Gov­ern­ment gave con­trol to Gazprom, the Rus­sian en­ergy gi­ant, leav­ing Shell with a mi­nor­ity share. It also emerged that only a hand­ful of Bri­tish com­pa­nies had won con­tracts.

That change in own­er­ship led the Euro­pean Bank for Re­con­struc­tion and De­vel­op­ment to re­voke its 150m pounds of sup­port for Sakhalin, but the ECGD, which has a dif­fer­ent man­date, has re­fused to do like­wise.

A fi­nal re­port on the en­vi­ron­men­tal im­pacts by AEA Tech­nol­ogy, an in­de­pen­dent con­sul­tancy, is due this month. In­sid­ers ex­pect it to en­dorse the fund­ing. ‘‘ We have given an in­prin­ci­ple com­mit­ment to fund this project and will make a fi­nal de­ci­sion based on the re­port,’’ said an ECGD spokesman.

Un­til the 1990s, Sakhalin Is­land re­mained largely un­touched wilder­ness be­cause of freez­ing seas, dif­fi­cult ter­rain and its use as a mil­i­tary base un­der the Sovi­ets.

But con­fir­ma­tion of mas­sive oil and gas re­serves in the Sea of Okhotsk, north of Sakhalin, plus the col­lapse of the Soviet Union, prompted an in­flux of west­ern oil com­pa­nies.

Shell set up the Sakhalin En­ergy In­vest­ment Com­pany (SEIC) to run Sakhalin II, in­clud­ing con­struct­ing the rigs. The pipe­lines were needed to carry oil and gas to ice-free ports at Sakhalin’s south­ern tip.

The in­volve­ment of the ECGD, and hence the Bri­tish tax­payer, arose be­cause the huge costs, plus Rus­sia’s poor record on debt re­pay­ments, made the banks that nor­mally fund such projects un­usu­ally cau­tious.

The SEIC ap­proached the ex­port credit agen­cies of Amer­ica and Ja­pan, as well as Bri­tain, to un­der­write any loans, and so re­as­sure the banks.

Any de­ci­sion to fund Sakhalin II would in­fu­ri­ate WWF, Friends of the Earth and other Bri­tish en­vi­ron­men­tal groups. They say the ECGD and Shell should have car­ried out a full as­sess­ment of Sakhalin II be­fore it started. They also say the re­port has taken so long that con­struc­tion work is nearly over.

WWF and the Cor­ner House, an­other pres­sure group, have launched a High Court ju­di­cial re­view to force the ECGD to pull out.

Ni­cholas Hild­yard, of the Cor­ner House, said the ECGD had been fool­ish.

‘‘ The ECGD gave a bind­ing prom­ise to sup­port this project be­fore get­ting as­sur­ances on its en­vi­ron­men­tal im­pact. This de­ci­sion was un­law­ful and we want it over­turned.’’

How­ever, Ivan Ch­ernyakhozskiy, a Moscow-based spokesman for the SEIC, said the com­pany still wanted the ECGD’s sup­port.

‘‘ They have made a com­mit­ment to sup­port us in prin­ci­ple and we ex­pect them to hon­our that,’’ he said. ‘‘ It is a good scheme which meets all our en­vi­ron­men­tal obli­ga­tions.’’ The Sun­day Times, Lon­don

Whale of a worry: En­vi­ron­men­tal­ists are con­cerned about the im­pact of Sakhalin II project

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