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WWF International, Switzerland: Unfit for purpose: Shell consortium profiting from the riches of Russia’s Far East: " oil platform is being built at the very spot where the last 100 critically endangered Western Pacific gray whales feed off of Sakhalin Island.":

Burning oil-gas by the Sakhalinneftegaz state company. Sakhalin Island on the Sea of Okhotsk, Russian Federation.
© WWF-Canon / Vladimir Filnov

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Map of the Sakhalin region
Map of the Sakhalin region

Critically endangered Gray whale <i>Eschrictius robustus</i>.
Critically endangered Gray whale Eschrictius robustus.
© WWF-Canon

 Construction through the forest.
Construction through the forest.
© Dmitry Lisitsyn / Sakhalin Environment Watch

Friday 25 Nov 2005

It has been a windfall year for international energy companies, capitalizing on record high gas and oil prices. And, with demand still high, the race to find more of these precious non-renewable resources is on. But at what cost?

Although future exploration could help alleviate escalating gas prices and reduce a nation’s dependence on imported oil, many of these companies — in their quest to maximize profits — are failing to meet their corporate and social responsibilities to local communities and the environment, the respective guardians and providers of these resources.

No place is this lack of responsibility more evident than in Russia’s Far East where the Royal Dutch Shell company — whose recent third-quarter results showed net income grow at an outstanding 68 per cent to US$9.03 billion from US$5.37 billion a year earlier — has embarked on a multi-billion gas and oil development project. The Shell-led project, which includes other multi-nationals like Mitsubishi and Mitsui, consists of three offshore platforms, offshore and onshore pipelines, an onshore processing facility, a liquefied natural gas facility, and an oil and gas terminal.

Known as Sakhalin II, this ambitious project will have severe, if not irreversible environmental impacts, particularly as the oil pipeline will cross over 1,000 wild rivers and tributaries, many of them important to salmon spawning. In addition, a million tons of dredging waste has been dumped against public protest into Aniva Bay — an area crucial to the livelihood of the island’s indigenous community — has led the destruction of the local fishery and other marine species like scallops. And to make matters worse, an oil platform is being built at the very spot where the last 100 critically endangered Western Pacific gray whales feed off of Sakhalin Island.

Although Shell agreed to move the offshore pipeline around the whale’s feeding area, they ignored the findings of an independent panel of distinguished scientists that recommended not constructing an oil platform in the vicinity. Such an action falls short of international best practices and adheres to a pre-determined construction schedule with little regard to serious long-term environmental concerns. It also shows that Shell has clearly chosen its profits over its self-inscribed principles of responding to potential impacts of its operations on the environment.

By Shell’s own estimates, there is a 24 per cent chance that there will be a major oil spill during the life of the 40-year project. This is a cause to worry. The Exxon Valdez oil spill disaster of March 1989 in Alaska’s once pristine Prince William Sound, which cost the oil company US$2.1 billion to clean up over three years and caused extensive environmental damage, should be a case in point for proceeding with extreme caution at Sakhalin. But, proceeding with caution has not been part of the overall game plan to get this project up and running.

Shell’s ability to pull off the US$20 billion mega-project, which includes a cost overrun of US$10 billion, however, relies on financing from the European Bank for Reconstruction and Development (ERBD). This public institution, which is mandated to support “environmentally sound and sustainable development”, will soon determine if the Sakahlin II project is “fit for purpose” and whether or not the consortium has developed the appropriate assessments and procedures to prevent adverse environmental impacts.

In May 2005, the head of the ERBD already determined that the project was “unfit for purpose” due to Shell’s disregard for environmental considerations. Six months on, the bank should reach the same conclusion and decline financing until Shell faces up to its environmental responsibilities.

This includes suspending the placement of the oil platform pending results of next year’s whale monitoring programme that will provide further information on the status of the whales, as well as suspend all construction activities for river crossings pending an independent assessment. Shell should be required to restore degraded rivers and tributaries and compensate local fishing communities for loss of livelihoods as a consequence of current practices. Finally, Shell should present an oil spill prevention programme that meets internationally acceptable standards, particularly in the harsh, icy conditions off the Russian island’s coastline.

The ERBD’s decision will no doubt be a litmus test for other banks and financial institutions to follow when it comes to financing such questionable and poorly-managed projects. Taking the most basic precautionary measures to avoid irreversible environmental destruction is not only socially responsible, but equally important to long-term profits and a company’s reputation. Better environmental management will truly serve investors and whales alike.

* Dr Claude Martin is Director General of WWF International

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