Russian Roulette

The Western Pacific gray whale, once thought extinct, clings to life in a remote Siberian sea. Biologists fear their research is serving as cover for massive oil drilling that could wipe out this lost tribe once and for all.

The housing in Yuzhno-Sakhalinsk consists primarily of block after block of dreary, five-story apartments that haven't had a coat of paint since they were built 30 or more years ago under communism. After the Soviet Union fell, the flats were given to the residents. But improvements have come slowly because of the unstable ruble and the lack of hard currency.

The only recent economic development -- a couple of upscale hotels -- is a result of Sakhalin's offshore oil investments. The oil and gas fields clearly offer the most promising economic engine. Whether the wealth they generate stays in Sakhalin or is exported to shareholders of multinational oil companies remains to be seen.

Before the 1994 Gore-Chernomyrdin agreement, Sakhalin's offshore resources went untapped for decades because technological barriers made it impossible to overcome the ice floes and earthquakes there.

California marine biologist Robert Brownell brought the plight of the Western Pacific gray whales to former Vice President Al Gore's attention.
Grisha Tsidulko
California marine biologist Robert Brownell brought the plight of the Western Pacific gray whales to former Vice President Al Gore's attention.
Fewer than 100 Western Pacific gray whales remain -- nearly one-third of which are dangerously thin.
John Dougherty
Fewer than 100 Western Pacific gray whales remain -- nearly one-third of which are dangerously thin.

The numbers involved are huge.

Offshore oil reserves are roughly estimated at 3.5 billion barrels of oil and 18 trillion cubic feet of gas for the first two production-sharing agreements alone -- Sakhalin I, controlled by an ExxonMobil and Russian joint venture, and Sakhalin II, controlled by Sakhalin Energy. Originally, Sakhalin Energy included two U.S. companies, Marathon Oil and McDermott International. They have since sold their shares, and Sakhalin Energy now includes Shell (55 percent), Mitsui (25 percent), and Mitsubishi (20 percent).

These, plus at least five more offshore oil and gas fields off the east coast of Sakhalin, are projected to become strategic energy sources for Japan, South Korea, and China.

In the next 20 years, $25 billion to $45 billion could be spent to develop the production and transportation infrastructure. Shell expects to invest $5 billion over the next five years for oil and gas pipelines from just south of Pil'tun to the southern end of the island, as well as an export terminal for liquefied natural gas. The pipeline could revitalize many Sakhalin industries and create 14,000 jobs on this island of 670,000.

The pipeline is crucial. Currently, the Molikpaq is the only oil-production rig, and tankers can reach it only six months a year. The rest of the time, the rig is encased in ice.

The United States is closely monitoring the oil and gas projects, and the State Department is helping American businesses looking for trade there. In July 1999, former Energy Secretary Bill Richardson attended a reception on Sakhalin to mark the first oil production from the Molikpaq.

The United States has also pumped money into Sakhalin Energy. The U.S. Overseas Private Investment Corp.'s $116 million loan to the consortium in 1997 matched investments from Japanese lending agencies and from the European Bank for Reconstruction and Development. OPIC also is providing political-risk insurance to Sakhalin Energy.

"If Russia changes its law and shuts down the project, Sakhalin Energy could issue a claim against OPIC to reimburse it for its losses," says David Gordon, director of Pacific Environment, an Oakland, Calif., environmental group monitoring Pacific Rim industrial developments. "Therefore, the risk is shifted to U.S. taxpayers."

The European Bank for Reconstruction and Development is in the early stages of negotiating a new project with Sakhalin Energy partners reportedly worth up to $10 billion to explore additional oil and gas reserves. The project could trigger the second larger-scale stage of developing Sakhalin's resources.

While investment in Sakhalin is massive, the actual oil production from the Molikpaq rig is projected to be about 22 million barrels a year, less than 5 percent of the oil produced annually in Alaska. Royalties of about $75 million a year will be divided between Russia (40 percent) and the Sakhalin provincial government (60 percent). The proceeds locally so far are being spent on roads, schools, and hospitals, according to Sakhalin news reports.


While rivers of money and political commitment flow into Sakhalin's oil and gas reserves, only a drizzle goes toward a protection plan for the gray whales whose existence depends on the food in these waters.

Despite environmental stipulations in the Gore-Chernomyrdin agreement and the OPIC and European bank loans, no whale-conservation plan exists.

The lack of data collected by the biologists is one reason, Weller says. And, he adds, that's directly tied to the lack of funding to conduct fundamental research.

When asked about the biologists' concerns that reducing funds to $99,000 a year has severely hampered their research, Sakhalin Energy's David Royal bristles. He implies that the Pil'tun team working under the auspices of Texas A&M is greedy and unwilling to share research dollars with Russians.

"I think there is one thing you have to understand," he says. "The Texas A&M people would like to do everything. We have to provide the opportunities to Russian scientists to participate in this and every other work that we do."

Royal says Sakhalin Energy is under no legal obligation to continue paying for whale research. He says the company has fulfilled its obligations under the Gore-Chernomyrdin agreement but will keep funding research because it wants to know how the whales are affected.

But Sakhalin Energy's environmental consultant, John Coil, says the company has no interest in doing fundamental whale biology.

"We have to support that portion of the research that has the most effect on us and where we can have the most effect," says Coil, who also has since left Sakhalin Energy. "We don't have the money to pay for fundamental research."

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