Suckered at Sakhalin
Exxon-Mobil may be planning to boost Russias economy, says David Gordon, but it could come at a whale of a cost.
Economically, Russia is on the move. Ever since her leaders tied the countrys economic future to oil development, recent high oil prices have spurred a recovery, providing revenues to service Russias foreign debt. All the while, regional governors talk enthusiastically about black gold as a key to economic development. Governors in Siberia and the Russian Far East have proposed at least 6 different pipelines to transport oil from fields to potential markets in China and Japan.
But investment in Russia has been stymied by the lack of rule of law, especially in remote regions of Siberia and the Russian Far East. Government corruption and organised crime cloud an already questionable business climate. All of which is why a recent new announcement has had Russian and US leaders talking loudly of breakthroughs, new stability of business climate... and that critical phrase foreign investment.
The breakthrough came in October 2001, when Exxon-Mobil announced the commercial feasibility of a large offshore oil and gas drilling project near the Russian Far Easts Sakhalin Island. The oil giant, which is developing the project through its Bahamian-registered subsidiary Exxon Neftegas Ltd, announced that it would invest $12 billion, making Sakhalin-I Russias single largest foreign investment project.
Sakhalin-1s fields contain an estimated 2.3 billion barrels of oil and 17 trillion cubic feet of gas. The fields are located in the Sea of Okhotsk, an area rich in marine biodiversity, providing more than two-thirds of Russias total fish catch.
Yet, as is so often the case, a closer look is needed. That closer look shows that Exxons supposed success with Sakhalin-1 is coming at a high price for rule of law in Russia. Investigation of Exxons ship-based seismic surveying in summer 2001 shows that Exxon subverted Russian government officials who tried to implement Russias environmental laws. It all comes down to the whales.
Western Pacific Grey Whales are one of the planets most endangered populations of whales. The population is estimated at less than 100, of which fewer than 20 are reproductive females. The whales are protected in Russias Red Book of endangered species and in 2000 were listed as critically endangered by the World Conservation Union (IUCN), a designation that states that the population is highly likely to become extinct in the foreseeable future.
Western Pacific Grey Whales spend more than five months of the year from June to November feeding offshore of Sakhalins Piltun Bay. Their prime feeding ground overlaps with the Odoptu oil field, part of Exxons Sakhalin-I project.
When oil projects were first proposed for Sakhalin Island, a number of Russian and US scientists raised concerns about the Western Pacific Grey Whales, about which little information was available. With the help of the Gore-Chernomyrdin Commission, the scientists reached an agreement with international oil companies to monitor these whales.
Funded by Exxon and Sakhalin Energy (a consortium run by Shell), a Russian-American scientific team started a research project on the western Pacific grey whale in 1997. The team was led by Dr Bob Brownell, a renowned whale scientist who works for the US National Oceans and Atmospheric Administration, Dr Alexander Burdin of the Kamchatka Institute for Ecology and Nature Management, and Dr Dave Weller of Texas A&M University. This scientific team documented the size of the population, observed whale behaviour relative to oil and gas activities, and defined the conservation status of the species.
Scientists observed changes in whale behaviour when Sakhalin Energy conducted seismic testing and started drilling for oil near the whale feeding grounds. In 1999 and 2000, scientists observed skinny whales severely malnourished whales that may not be able to survive migration or effectively reproduce.
Of the 58 whales observed in 2000, the scientists documented 27 skinny individuals. Equally alarming is that between 1997 and 2000, only 12 reproductive females have been identified, representing a number considerably lower than expected.
In summer 2001, the teams research resulted in a resolution to protect Western Pacific Grey Whales from the intergovernmental International Whaling Commission (IWC) that called for every effort... to reduce anthropogenic mortality... to zero and to reduce various types of anthropogenic disturbances to the lowest possible level.
The resolution agreed with the findings of the IWCs Scientific Committee, which strongly recommended that Exxons planned seismic testing not be conducted while whales were in the area.
Seismic exploration uses high intensity noise to determine approximate oil and gas reserves under the seabed. Seismic tests have been shown to affect whale behaviour significantly in other parts of the world. Studies have shown that more than 80 per cent of grey whales offshore of California change their migration route when seismic testing increases above 130 decibels. Grey whale mothers and calves appear to be particularly sensitive to seismic exploration.
Scientists are observing similar tendencies in waters near Sakhalin. When Sakhalin Energy conducted seismic testing 30 kilometres away from the whale feeding ground in 1997, scientists noticed changes in whale behaviour. In 2001, the Russian-American scientific team observed a movement of whales to the south that occurred abruptly in early August and coincided with the start of Exxon Neftegas Ltd seismic surveys in the central to northern part of the whales feeding habitat.
In a letter to the Russian Ministry of Natural Resources, the scientists wrote: We believe that seismic operations have displaced whales from their preferred habitat. It is quite likely that they have been forced to use less preferred areas that may be characterised by food resources that are more limited or of poorer quality. That is, although the whales observed continue to feed, their food intake may be decreased as a result of the noted shift in distribution to the south.
While some scientists believe that changing ocean conditions and global climate change another issue that Exxon-Mobil has failed to address adequately may contribute to the problem of skinny, or malnourished, whales, they agree that seismic exploration exacerbates the threat to vulnerable populations, particularly pregnant females and calves, which need to feed as much as possible in order to build up the body fat necessary to survive their migration south.
Alarmed by the whales condition and in response to the IWC resolution, Russias Ministry of Natural Resources acted to protect the whales. The Ministry sent a telegram on 20 August to its local branch, the Sakhalin Committee of Natural Resources, ordering a halt to seismic testing while the whales were on their feeding grounds. The telegram, signed by A M Amirkhanov, the head of the Ministrys Department for Protection of the Environment and Environmental Security, orders the Sakhalin Committee to: Take measures to not allow the conduct of seismic exploration while whales are located along the shore of Sakhalin. Urgently inform concerning adopted measures. The telegram was authorised by the office of Russias Minister of Natural Resources, V Artyukhov.
Despite the directive, Exxon continued its seismic testing. According to Exxons Sakhalin Public Affairs manager Michael Allen, Exxon was never officially directed by the Sakhalin Committee of Natural Resources to stop its seismic exploration. Allen acknowledges that he was informed by the local Committee about the telegram and its contents as soon as it arrived, but the local committee concluded their discussion by saying that Exxon need not stop its testing. So Exxon continued to bombard the whales feeding area with seismic blasts until 8 September, almost three weeks after the Russian federal government had first ordered a stop to the exploration.
WHY LOCAL GOVERNMENT FAILED TO ACT
Why did the local government refuse to implement Moscows order? How does a multinational company such as Exxon subvert the rule of law in Russia so as to allow it to complete the seismic testing it needed in order to announce commercial feasibility, notwithstanding orders that the testing be halted?
Natalya Onischenko, head of the environment department for Sakhalins Committee of Natural Resources, claims that the telegram was not clear that it ordered them to stop the seismic exploration even though the words not allow were in the telegram. Onischenko, who has long been a staunch defender of western oil company activities on Sakhalin, instead says that the Committee simply requested information from Exxon about whether it was conducting seismic testing in accordance with its original permit.
THE END OF ENVIRONMENTAL PROTECTION?
In May 2000, President Vladimir Putin issued one of the most controversial orders of his presidency. In a decree to reorganise the government, he liquidated the State Committee for Protection of the Environment and transferred those functions to the Ministry of Natural Resources. The Ministry of Natural Resources is the ministry in charge of extracting natural resources, including oil and gas, in the Russian Federation thus leading to a direct conflict between its mission to extract minerals and, now, to protect the environment.
Alexey Yablokov, a leader in the Russian environmental movement and a marine mammal biologist who has worked on grey whale issues, strongly opposes the liquidation of the Committee and has led efforts to have the Committee reinstated.
Onischenko argues that due to the liquidation of the State Committee, she no longer has the authority as a state inspector to halt Exxons operations. Dmitry Lisitsyn, chair of the environmental watchdog group Sakhalin Environment Watch, agrees but points out that her boss, A S Chibisov, the chair of the Sakhalin Committee of Natural Resources, and the original recipient of the telegram, does have those powers. Yet Chibisov, with his background in resource extraction, would be unlikely to stop Exxon.
Environmental control in Russia was severely diminished following the liquidation of the State Committee. In this case, the liquidation contributed to a failure by local government officials to act to protect the environment.
Exxons Sakhalin Public Affairs Manager Michael Allen echoed Onischenkos argument that the language in the telegram from the Ministry of Natural Resources was unclear. He further maintained that the order should not have been sent as a telegram, but rather as a letter notwithstanding that the Russian government traditionally uses telegrams to emphasize the urgency of an issue.
Allen also claims that an order stopping the seismic testing would have had to come from someone higher up than Amirkhanov, who is the director of the Department for Protection of the Environment and Environmental Security. Allen believes the order should have come from the Minister himself implying that Exxon would only obey an order from the Minister, not from any other government official responsible for enforcing Russian government regulations.
Allen disputes the Russian-American scientific teams conclusion that seismic testing displaced the grey whales, although he has not seen their results. He argues that Exxons observers did not observe any behavioural changes. Despite repeated requests from the author to Allen to provide Exxons data to compare it with data from the Russian-American scientific team, Exxon has so far refused to share this information.
Allen admits that Exxon was in close contact with the Committee of Natural Resources following receipt of the telegram from Moscow. But Allen maintained that no payments were made to the local Committee of Natural Resources or its employees that would constitute a violation of the US Foreign Corrupt Practices Act, notwithstanding that the company regularly pays local government agencies for various services.
One key reason behind the local government refusing to implement Moscows orders is that no one was willing to potentially scuttle or even slow a huge economic project in favour of an endangered population of grey whales.
According to the Production Sharing Agreement (PSA) the contract between the Russian government and Exxon that allows for development of Sakhalin-I Exxon was required to finish its seismic exploration in 2001.
Exxon couldnt afford to wait until the whales moved away from Sakhalin in November, because by then weather conditions offshore of Sakhalin would not allow for seismic testing.
Some within the Russian government acknowledge that the Sakhalin-1 PSA was signed hastily and will not benefit the Russian people. A report from the Auditing Chamber documents the economic mistakes in the Sakhalin-1 PSA. If Exxon had not finished seismic testing, the Russian government could have revoked the PSA and started anew.
Nonetheless, Onischenko admits that no one was willing to take ultimate responsibility to implement a rule that might have threatened the entire project. She argues that Moscow sent the telegram to the local Committee because Moscow did not want to take the heat. But the local Committee refused to act for fear of repercussions associated with halting a project by a major transnational oil company.
When the local Committee of Natural Resources refused to implement the orders from Moscow, Dmitry Lisitsyn of Sakhalin Environment Watch went to the scientists. On 31 August, following an overnight train ride to northeast Sakhalin, he walked 40 kilometres, all day in bad weather, to reach the Piltun lighthouse, where the whale scientists were camped.
Following Lisitsyns explanation of the situation, the scientists wrote a letter on 1 September to the Ministry of Natural Resources, reiterating their concerns about adverse impacts to the whales from Exxons seismic testing. On 7 September, the Ministry of Natural Resources directly ordered Exxon to stop its seismic tests by 15 September. On 8 September, Exxon ceased seismic exploration, claiming that it had completed its work though people familiar with the project believe Exxon did not complete its seismic programme.
Now, NGOs are banding together to focus attention on threats to grey whales from oil and gas development. In addition to Sakhalin Environment Watch, three international NGOs Greenpeace, International Fund for Animal Welfare, and the Worldwide Fund for Nature have formed a Moscow-based coalition to protect Sakhalins grey whales. In the Russian Far East, the Living Seas Campaign a coalition of leading regional environmental groups working to protect marine biodiversity is focusing attention on the grey whales.
Scientists throughout Russia are calling for grey whale protection. The Council on Marine Mammals of the Interagency Ichthyological Commission in Moscow recently issued a resolution calling for a ban on industrial activity, including seismic exploration and construction for oil and gas development, in the grey whales feeding area.
In response to this mounting pressure, Exxon and its friends on the Sakhalin Committee of Natural Resources have launched an attack against the Russian-American scientific team that has studied the grey whales for the last five years. Even though Exxon was one of the original funders of the research, Exxon is neither funding the team nor heeding their advice now that the findings might adversely impact Exxons operations.
In order to study whale genetics, the scientists collect biopsy samples by shooting a highly specialised dart to take a small piece of skin for analysis. Each biopsy is about the size of a vitamin capsule, and in addition to being used for genetic analysis is also being used to examine molecular stress in the whales. Brownell of the Russian-American scientific team says this accepted scientific method for collecting genetic data is harmless and is used to study whales and dolphins around the world. The biopsy sampling programme is conducted as part of a US-Russian environmental agreement. In our interview, however, Exxons Michael Allen contended that the scientists taking of biopsies is unconscionable and the true cause of disruptions to the grey whales, rather than Exxons seismic testing.
Exxons allies at the Sakhalin Committee of Natural Resources parrot these sentiments. Onischenko complained about the biopsies and worried about the lack of control over grey whale research. She suggests a need for greater government oversight which raises the discomforting spectre that government officials might use the red herring of alleged harm to the whales as an excuse to halt research that tracks adverse impacts on whales from oil development.
To ensure protection for the whales, environmental NGOs are going to the Russian courts. Rodnik a public-interest environmental law firm based in Moscow and Sakhalin Environment Watch, joined by seven other environmental organisations and 70 citizens from around Russia have filed suit against the Russian government, arguing that it is not doing enough to protect grey whales.
According to the Law on Protection of the Animal World, the Russian government must take all necessary action to protect endangered species such as the Western Pacific Grey Whale. Rodnik and Sakhalin Environment Watch point to this summers seismic testing and argue that the federal government did not fulfil its responsibility to protect the viability of this critically endangered population.
Rodnik and Sakhalin Environment Watch are asking that the courts order the Ministry of Natural Resources to prevent future seismic testing and disturbances from oil and gas development during the grey whale feeding period. Neither the Russian government nor Exxon deigned to appear for the first court hearing.
Legal remedies have so far been the best method for Russian environmentalists to ensure that Exxon follows the law in the Russian Far East. It took a court victory in 1999, led by the Moscow-based Ecojuris and Sakhalin Environment Watch, to prevent Exxons dumping of drilling wastes at sea in violation of the Russian water code.
Nonetheless, even the Russian judicial system may not be a reliable way to implement the law. In an unrelated court case associated with Sakhalin Energy and the Sakhalin-2 project, Sakhalin-based judges overturned a fine on Sakhalin Energy by the Sakhalin Fisheries Agency for refusing to provide the government with information about its payments for damage to marine resources. Sakhalin Environment Watch argues that the law was clearly on the side of the Sakhalin Fisheries Agency, but that the local judges were swayed by the power of the oil companies.
Russian scientists and environmentalists are especially concerned about Exxons plans now that it has announced commercialisation. These include the construction of a pier right in the middle of the grey whales feeding ground and intensive shipping to and from the pier. This constant disruption, in addition to planned development of offshore-to-inshore pipelines requiring substantial dredging of the seafloor, is likely to further adversely impact the grey whales.
Environmentalists are calling upon Exxon to forego construction of the pier and instead transport materials by land. They are also calling for the creation of a whale sanctuary offshore of Piltun Bay that would protect the Western Pacific Grey Whales from seismic exploration and other disruptions from oil and gas drilling.
Environmentalists are equally concerned by Shells plans to expand the Sakhalin-II project. Shell intends to build another offshore oil platform near the whale feeding grounds, construct pipelines connecting the platform to the shore, disturb the seabed, and potentially conduct further seismic testing. Shells activities are likely to be as dangerous for the grey whales as Exxons plans. Also, seismic testing is planned next summer as part of the Sakhalin-V project, run by British Petroleum. Scientists and environmentalists worry about the cumulative impacts of Sakhalin oil development on the grey whales and argue that the government and financing agencies have not reviewed these cumulative impacts.
Dmitry Lisitsyn of Sakhalin Environment Watch argues: If these plans are realised, the whales will not have any chance to survive. All this work will occur in the most important whale feeding areas. This risk is simply unacceptable if we want to further admire these amazing animals.
David Gordon is Associate Director of Pacific Environment, which has worked in partnership with Sakhalin Environment Watch, a local environmental organisation, to monitor the offshore oil developments of Sakhalin since 1997.