Royal Dutch Shell Group .com Rotating Header Image Sakhalin Projects Under Assault

3 October 2006

Given the recent actions of Vladimir Putin’s regime, it’s hardly surprising that it is now meddling with the production-sharing agreements that the government has with ExxonMobil, Shell, and Total on the massive Sakhalin project. The signs have been coming with increasing frequency in the form of edicts or statements from different agencies and ministries.

The official line was finally delineated by the Russian president himself in late September, when he warned that his government “would take appropriate measures against any oil firm breaching its license.” He went on to say, “I am counting on the [natural resources] ministry and the government as a whole making these decisions, including with regard to those companies that work in bad faith and don’t fulfill licensing agreements.”

The irony, consistent with the current Russian version of Orwellian double-speak, is that the presumed violations are over environmental and safety compliances – this in a country notorious for its historical disregard for such western, politically correct issues. True to form, and reminiscent of its assault on Yukos and expropriation of the energy industry, the government is using a fig leaf of respectability (in this case, environmental protection) for what everyone knows is its ultimate aim: control of the energy business and a bigger share of profits, especially with high oil prices – although the government has shown that control is far more important to it than profits.

More requisite double-speak came almost simultaneously from the foreign minister, Sergei Lavrov. At an oil and gas conference in Sakhalin, Lavrov, referring to threats against Shell’s Sakahlin II project, said, “There are no grounds for the opinion that foreign investors are being forced out of the fuel and energy sector.”

All of the Sakhalin PSA operators have received hints that the Putin government wants to re-examine the terms of their agreements. The agreements, signed during Boris Yeltsin’s administration, clearly would not have been approved by the present government, which has mandated that Russia must control 51 percent of its “strategic assets.” In September, the natural resource ministry threatened to cancel Shell’s Sakhalin II environmental license; similar complaints had already been lodged against ExxonMobil, Total, and TNK-BP.

Oleg Mitvol, from the ministry’s environmental department, stated that a decision will be made by October 20 whether to lift the Sakhalin II license, due to damage it is causing to the island’s coastline, rivers, and forests. He added, “There are two possibilities: either we shut down work if they refuse to fulfill the necessary requirements for environmental safety, or they take a look at the report and fix everything. Then, they can go ahead as planned.”

Shell has protested that even an inspection is unnecessary. However, analysts believe that one reason Shell has been singled out is the government’s displeasure with the company’s 2005 announcement that development costs on Sakhalin II had soared to more than $20 billion, double the original estimate.

In a classic quip, Valery Garipov, head of the Russian Trade and Industry Chamber’s oil industry development committee, said it all: “Why is Sakhalin II criticized and Sakhalin I isn’t? Because Sakhalin I has Russian participants.” What he probably hoped would be inferred – as incredible as it might be – is that Russians are more environmentally responsible, and better stewards of Mother Russia’s resources, than foreigners. Most readers will interpret his statement in much simpler terms. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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