Whales are pawns in Kremlin’s power battle with Shell
Sakhalin Energy has been "detonated" by matters that had little to do with the environment and forced to spend $US300 million rerouting its offshore pipeline in order to avoid a feeding ground of the world’s only population of grey whales, says The Australian (24/11/06, p.28).
Big impact on future: This has turned the island into a battleground between the Kremlin and the world’s largest oil and gas companies. At stake is the Shell-led $US20 billion ($A26 billion) oil and gas project known as Sakhalin-2. The outcome of the stand-off will determine not only the future of Sakhalin’s oil and gas reserves but also, more broadly, the rights of foreign investors in Russia.
One of most ambitious energy projects ever: Sakhalin-2 is one of the most ambitious energy projects ever undertaken. It involves drilling for oil and gas 16km out into the Pacific Ocean, transporting it in 800km-long pipelines along the island, which is frequently shaken by earthquakes, before turning the gas into liquid at a giant LNG plant – the first of its kind in Russia.
Cost problem in the background: Yet senior ministers readily concede that the crackdown on Sakhalin Energy – the holding company that is 55 per cent owned by Shell – was "detonated" by matters that had little to do with the environment. German Gref, Minister of Trade and Economic Development, has described the main factor as rising costs. Last year Sakhalin Energy announced that these would be double the $US10 billion it estimated in 2001. The overrun will have a direct effect on Russia’s state finances because the production-sharing agreement, the legal basis of the project, allows foreign companies to fully recoup their outlay and receive a real rate of return of 17.5 per cent before they have to share revenues with Russia.
Putin enraged: Rising costs would delay the moment Russia saw any money from the project. President Vladimir Putin is said to have been enraged: not only did Russia give Shell an advantageous deal but now it had to bear the burden of the price increase. Gazprom’s staff costs, by comparison, almost triple from 2001 to 2005, and materials and maintenance bills have risen more than 60 per cent.
Auditor says rises justified: Last month the state auditor said the bulk of the Sakhalin-2 increases were justified. Meanwhile, as costs have gone up, so has the price of oil.
Kremlin’s change of heart: The Kremlin has always treated environmental campaigners such as Lisitsyn as at best a nuisance, at worst a front for foreign intelligence services. The sudden change of heart coincided with the crackdown on Shell.
THE full cost of adopting nuclear power in Australia would probably be several hundred billion dollars and would be likely to go even higher because of a history of cost blow-outs in plant construction, decommissioning and waste storage, energy experts say.