Sakhalin sets example for Arctic projects

Oil and gas development on the island in Russia’s Far East has benefited local communities in many ways, Shell executive says

Sarah Hurst

For Petroleum News

Shell’s experience in the Russian Far East with the Sakhalin II project provides valuable lessons that could be used farther north, Robert Blaauw, the company’s Arctic team leader, told the Arctic Frontiers conference in Tromso, Norway, Jan. 26. Shell has worked with Sakhalin Island’s 3,500 indigenous people and other residents to ensure they benefit economically and socially from oil and gas development, Blaauw said.

“The Sakhalin oil and gas projects are the first world-scale industrial projects in this remote island,” he said. “Naturally, much like Alaska the indigenous people were concerned about the impact these massive projects could have on traditional lifestyles and how they could benefit. Finding the right way for sustainable cooperation took time, but with a project lifetime of some 50 years, investing time and effort to find the best possible cooperation model is imperative.”

Shell has a 27.5 percent stake in the Sakhalin Energy consortium that runs the Sakhalin II project, with Russia’s Gazprom holding 50 percent plus one share, Mitsui 12.5 percent and Mitsubishi 10 percent. Sakhalin II is considered one of the world’s largest integrated oil and gas projects, with its two fields containing an estimated 1,200 million barrels of crude oil and 18 trillion cubic feet of natural gas.

Since production began in 1999, more than 150 projects have been launched in Sakhalin to address healthcare, education, preservation of languages and support for tribal enterprises and communities, Blaauw told the conference. The Russian Association of the Indigenous People of the North helped to make the projects a success, he said.

“The Sakhalin II project brought a sea change to local communities,” Blaauw said. “Once an outpost with a shrinking population, it saw jobs created, new hospitals and better roads built. Once the island was one of Russia’s worst regions for unemployment — now it has a jobless rate of 1 percent.” The harbor town of Korsakov experienced years of stagnation until Sakhalin II developed the nearby villages for oil and liquefied natural gas exports, and now it is thriving, Blaauw said.

“At the peak of construction, Sakhalin Energy transported goods and people over some 6 million kilometers (3.7 million miles) every month,” Blaauw said. “In the early days contractors and Sakhalin Energy employees ran a risk of being injured in traffic accidents. This was due to bad weather, poor roads, but also due to bad driving habits, including not wearing seatbelts and drinking and driving. The risk of dying in road accidents then was around 10 times higher than in the UK.”

After Sakhalin Energy launched a comprehensive road safety program aimed at workers and communities, including better road signs, improved roads and a TV ad campaign to encourage the use of seatbelts, the number of people using seatbelts in Sakhalin rose to more than 80 percent in 2008, Blaauw said.

“Now, what does this have to do with oil and gas developments?” he asked. “Well, nothing and everything, because we all want our neighbors and partners to do well, and that starts with coming home to our friends and families safely and in one piece.”

The conclusion to draw from Shell’s experience in Sakhalin and also Alaska is that stakeholder engagement should start at the very beginning of a project, he said.

“Working in the Arctic with its unique challenges requires inclusive and diverse relationships with key stakeholders at all levels,” Blaauw said. “They all have a role to play, including environmental NGOs (non-governmental organizations) and regulators.”