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Russia: WSJ on Sakhalin's Industry-Friendly PolicyIn Russia With Fragile Ecology: Stymied in Alaska, Oil Companies Find Russian Rules Aren't as Strict NOGLIKI, Russia -- Sakhalin Island has long been celebrated in Russia for its salmon streams and shallow ocean waters full of cod, crab and herring -- a bounty for fishermen and for endangered gray whales. Now it's about to become more famous for its oil. Two multinational consortia are drilling and building rigs offshore, in the first such projects approved by Moscow, and plans are being laid for hundreds of miles of oil and gas pipelines. Since environmentalists blocked President Bush's plan to pump oil from the Arctic National Wildlife Refuge in Alaska, this island across the North Pacific has become all the more prized by oil drillers trying to satisfy the world's demand for energy. Sakhalin Island's natural assets aren't protected by the same environmental rules that govern drilling in the U.S. Therein lies a global tradeoff: As environmental groups scramble to shield one piece of the planet from oil exploration, the drilling rigs pop up on another sensitive frontier. At Sakhalin, consortia led by Exxon Mobil Corp. and Royal Dutch/Shell Group are breaking ground on $22 billion worth of oil- and gas-drilling facilities to rival some of the biggest in North America. Since the U.S. Congress rejected drilling in the Alaskan wildlife refuge in the spring, a consortium headed by London-based BP PLC has secured an exploration permit in order to join them. All three projects would potentially prime the local and national Russian economies with huge sums of money, and the companies say they hew to the highest environmental standards. The oil companies believe that as many as 13 billion barrels of oil lie beneath the waters around Sakhalin. That compares with oil reserves in the U.S. of about 22 billion barrels. But the groups already at work aren't following many of the protective measures that would be standard in the U.S. The Exxon Mobil-led venture, for instance, has allowed seismic blasting within 2.5 miles of endangered Western Pacific gray whales, while regulators in Alaska say they have generally enforced a 12-mile buffer to keep from driving whales away from their migratory routes and feeding grounds. The consortium plans to transport oil year-round through Russia's ice-clogged Tatar Straits. Alaska, by contrast, has limited oil operations during periods of heavy ice floes in the Arctic Ocean because the industry flunked tests on cleaning up spills from drilling in those conditions. The Shell-led group has discharged toxic drilling muds into the shallow ocean waters off Sakhalin after an industry-sponsored study persuaded the Russian government to change its rules to allow the practice. To protect marine life, such dumping is prohibited in much of coastal Alaska. For oil spills, Shell's closest cleanup equipment and manpower is about 50 miles from the oilfields, too far to meet requirements in most developed nations. Exxon Mobil's plans rely on the same spill-response setup. Neither group has so far offered any plans to protect the salmon from pipeline discharges, as would be required in the U.S. Even the head of Sakhalin's office in charge of promoting oil and gas development, Galina Pavlova, says she worries the island is unprepared for a catastrophic spill. Though she and other local officials have raised some objections, they haven't challenged Moscow's authority to make the decision on expanding drilling. "I think the project is doomed to be realized," Ms. Pavlova says. The first phase of the Shell-led project already is up and running, with government approvals. Since 1999, it has had a rig doing initial plumbing of an oil reservoir believed to hold as many as one billion barrels. Exxon Mobil secured its first major permit from Moscow in July. The companies cite their industry's experience in Alaska and the North Sea as evidence that they will protect sub-Arctic ecosystems from harm, and reject any contention that they pursue lower standards in Sakhalin or anywhere else. Shell spokesman Mike McGarry says the group is committed to meeting either Russian or international standards, "whichever is higher," and calls Russia's regulations "among the most rigorous and comprehensive in the world." Shell says its venture is an improvement on the practices of Russia's domestic oil industry. Volumes of Reports Exxon Mobil officials say they have compiled nine volumes of reports on how their project will affect Sakhalin, as part of an environmental assessment required by Russian law. "To me, the theme here is the government wants to pursue development of these resources in a responsible fashion," says Gary Weidman, Exxon Mobil's regulatory manager for Sakhalin. "We are committed to doing that." Critics say the reports lack the needed details on how fish will be protected and oil spills averted; the company says those details are still to come. Shell officials add that some comparisons to Alaska are unfair. For instance, they say that in the open Sea of Okhotsk, any offshore spill most likely would be carried away from Sakhalin by currents. That would give their crews more time to respond than in a more landlocked estuary such as Alaska's Prince William Sound, site of the disastrous 1989 spill from the Exxon Valdez oil tanker that led to many of the tough regulations in the U.S. Officials in Moscow charged with overseeing Sakhalin oil development declined repeated requests for comment. Test Case Environmentalists are looking at Sakhalin as a test case to spur multinational energy companies to use stricter environmental standards, even amid the looser requirements of the developing world. Freeport-McMoRan Copper & Gold Inc., for instance, continues to draw fire for dumping mine waste into a river valley below its massive Indonesian copper and gold mine. The practice probably wouldn't be allowed in the U.S., though the company says reports of damage are exaggerated. ChevronTexaco Corp., meanwhile, is being criticized by activists who say it broke promises to clean hundreds of open oil-waste pits left in Ecuador by a partnership including Texaco. ChevronTexaco says Texaco undertook a $40 million cleanup of any environmental problems left in Ecuador, and that the local government approved the job. As a non-Arab oil producer with 49 billion barrels of known reserves, Russia has emerged as a popular alternative to America's main Mideast oil suppliers, especially since Sept. 11. President Bush, in his national energy policy, labeled Russian oil "strategically important" to the U.S. He and Russian President Vladimir Putin, at their Moscow summit in May, praised the proposed $12 billion Sakhalin 1 project as a model of economic cooperation. Sakhalin 1, launched by the Exxon Mobil group in 1996, comprises three main fields off the 589-mile-long island's northeastern coast. With final approval, its oil will flow west by pipeline to a terminal about 150 miles away on the Russian mainland, where tankers will haul it to market. The $10 billion Sakhalin 2 next door was launched in 1994 -- before Sakhalin 1 -- by the consortium now headed by Shell. On the drawing board are twin 400-mile trans-island pipelines to take Sakhalin 2 gas and oil to processing plants on the island's southern tip, where most of its population of 700,000 lives. Jubilant Islanders When officials in Moscow announced a decade ago that Russia would offer leases to foreign companies to drill for oil and gas on the Sakhalin shelf, the islanders were jubilant. Their average income is the equivalent of about $200 year. Exxon Mobil and Shell say their ventures have committed a combined $1.7 billion to contracts with Russian companies, much of it for work already under way, and will each create thousands of local jobs. Exxon Mobil also promises tax revenues rising from $250 million to $1 billion a year. The Shell-led consortium projects that it will pay about $50 billion in taxes over the estimated half-century life of the project. Moscow and its representatives on Sakhalin already have eased the way for drilling. In 2001, Russia's State Committee on Fisheries rescinded its rules protecting fisheries in drilling zones off the island's northeastern coast, after research -- funded by the oil companies -- found the oil-rich area wasn't as valuable a fishery as previously thought. By downgrading its assessment of the area's importance as a fish resource, the Sakhalin Research Institute of Fisheries and Oceanography, which conducted the study, opened the way for oil companies to dump drilling wastes in local seas. Previously, the practice had been illegal in those waters, because such waste often includes mud laden with contaminants that are toxic to fish. The same protections apply to most of Alaska's coastline, where oil producers are required to reinject drilling waste into the ground at great expense. Officials of the federally chartered State Committee of Natural Resources on Sakhalin say they accepted the study results because no other research had been done. "That meant the activity had to be approved," says Natalya Onishenko, head of environmental conservation for the committee in the Sakhalin capital of Yuzhno-Sakhalinsk. But the study has drawn criticism from other Russian scientists and government officials who say its results were biased. For instance, the study considered mainly the drilling area's permanent fish population. It largely excluded the stocks of salmon, which are equally important economically, that pass through the area on their migrations. The study also restricted its analysis to fisheries located directly over oil deposits, ignoring the rest of the coastal ecosystem. Objective Opinion? "I don't believe we can get an objective opinion from scientists who are dependent on companies," says Sergey Butyrin, the chief Russian fishery official for northern Sakhalin, though his agency approved the change anyway. The research institute, which defends its results, says that only the oil companies have the money to fund research. A federal court in Moscow sided with the island's Sakhalin Environment Watch group, agreeing that the ocean discharges could be damaging to aquatic life, and blocked the Exxon Mobil group from dumping its drilling mud at Sakhalin 1. The court's ruling had no impact on similar discharges at Shell's Sakhalin 2, because Shell had prior agreements with the government, says Dmitry Lisitsyn, chairman of Sakhalin Environment Watch. Shell says its muds are too low in toxicity to harm sea life, and in any case are being injected directly into the ground wherever possible to avoid discharges into the water. Many scientists and Sakhalin fishermen say Shell underestimates the danger. In 1999, the first year of commercial oil production, herring by the thousands washed up dead on local beaches, and local schools of saffron cod have since shrunk drastically, fishermen say. Oil officials say overfishing might have been responsible for the diminished cod population and that some other factor, such as a disease at sea, may have accounted for the dead herring. Activists couldn't stop Exxon Mobil from exposing Western Pacific gray whales to seismic blasts, even after getting Moscow to agree to take action. U.S. and Russian scientists had noticed that many of the critically endangered whales, which number less than 100, were growing unusually thin after oil drilling began in 1999. The waters near Sakhalin's northeastern coast are the species' main feeding ground, so scientists theorized noise from the drilling chased them away and caused the weight loss. Last summer, the International Whaling Commission asked the consortium to postpone the explosions until the whales' winter migration to the South China Sea. Russia's Ministry of Natural Resources ordered a halt in a telegram to its own officials on Sakhalin. But they chose not to enforce the Moscow order and declined to rescind Exxon Mobil's license for the testing. Mitigation Measures Meanwhile, the company agreed to spend $2.5 million on mitigation measures, including 130 surveillance flights to watch over the whales for problems, reduce the planned decibel level by 2% and to keep blasts at least 2.5 miles away from the whales. Exxon Mobil says its overflights detected no changes in whale behavior during the testing. But a team of Russian and American whale scientists perched at a lighthouse onshore, who regularly monitor the pod, say they observed 32 whales fleeing for quieter waters. The scientists say the whales returned only when the blasting stopped. In Exxon Mobil's shipping plan, oil would be loaded onto tankers after it was piped to a terminal on the Russian mainland, and then shipped year-round through the Tatar Straits to Japan and elsewhere. In March, as requested by the Sakhalin government, the company sent an empty tanker through the ice-choked strait to determine whether a tanker could make the passage safely. The ship picked its way through the ice with few problems. Sakhalin officials and local fishermen called the test inconclusive because conditions were unusually warm and the ice was at half its normal winter thickness. But the officials have required no further tests. A spill amid surging ice floes would be difficult, if not impossible, to clean, as the state of Alaska found out. Two years ago, the state compelled the industry to run a series of cleanup tests in broken-ice conditions. The companies failed them all. As a result, oil producers on the North Slope have agreed to restrict drilling operations to times when ice isn't breaking up. North Slope crude is pumped down the Trans-Alaska Pipeline to an ice-free port, rather than transported through ice floes. The oil-spill system already deployed for Shell's Sakhalin 2 project -- and also to be used for Sakhalin 1 -- relies mainly on cleanup equipment stockpiled inland. The equipment in Nogliki on the north side of the island is about 50 miles from the offshore oilfields, separated from the coast by about 30 miles of often-impassable dirt roads. Another spill-response site also is inland, hundreds of miles to the south, in Korsakov, to protect against spills drifting south toward nearby Japan. When a quartet of environmentalists from the U.S. and Britain arrived for an inspection tour recently at local environmentalists' request, they reported significant lapses. For example, workers in Korsakov took about 30 minutes to find the key to unlock a warehouse filled with the spill equipment, says one of the participants, David Gordon, associate director of Oakland, Calif.-based Pacific Environment, which assists the Russian environmentalists. Shell officials say there is room for improvement in the system but call it adequate. Spill response in Canada, Norway and Britain is generally far more comprehensive. In the Shetland Islands off Scotland, for instance, spill equipment is kept stockpiled at a terminal where tankers load North Sea oil. In Alaska, state and U.S. officials ordered the industry to set up a massive spill-response system for Prince William Sound, including the deployment of barges filled with cleaning equipment throughout the waterway. Sakhalin officials admit their system isn't as rigorous as Alaska's, in part because oil development by foreign corporations is so new here. "But early on, we just said yes to these projects," recalls Ms. Pavlova of the Sakhalin oil and gas agency, "because we needed them."
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