Sakhalin governor welcomes Alaska oilfield firms in July visit to state

Alaska and Sakhalin have similarities in resource bases and population, need for outside investment to develop oil and gas

By Steve Sutherlin

PNA Managing Editor

Gov. Igor Farkhutdinov of Sakhalin invited Alaska firms to participate in Sakhalin’s upcoming oil development opportunities. Farkhutdinov was in Anchorage July 12 to discuss opportunities for Alaska firms as a spate of new development initiatives in Sakhalin begin.

Alaska firms are geographically well positioned to do business in Sakhalin, and are experienced in the remote and harsh operating environments both regions share, he said. The greatest attraction of Alaska firms however, is attitude.

“Our mentality is similar,” Farkhutdinov said through an interpreter.

Dr. Galina Pavlova, director of Sakhalin’s Department of Offshore Mineral Resource Development, joined Farkhutdinov at a special noon meeting of the Alaska Support Industry Alliance. The presentation was co-sponsored by the state of Alaska, the Resource Development Council, and the U.S. Department of Commerce.

Farkhutdinov praised Alaska companies for their participation in Sakhalin oil and gas development.

“We welcome that many Alaska companies have come to Sakhalin and have made many investments,” he said. He identified Natchiq Inc. as one of the leaders in Sakhalin/Alaska relations.

Farkhutdinov also praised Evergreen International Airlines Inc. for its announcement that it will soon begin scheduled passenger-freight combination flights to Sakhalin from Alaska, service that has been absent for six months.

“Without good air transportation it is difficult to work with Alaska colleagues,” he said. “Myself, I had a long trip to get here.”

Glaring similarities

As Alaska has done, Sakhalin would like to use its oil resources to achieve economic dependence from the national government.

Farkhutdinov said he was pleased with recent changes in the Sakhalin economy. Sakhalin in 1999 saw steady increases in industrial production and its gross domestic product. The region still receives federal support appropriations but the level of those appropriations is now falling.

The number of unemployed in Sakhalin is falling as well, while the standard of living is increasing, the governor said. These improvements follow a period of hardships that caused Sakhalin population to fall by 12 percent from a high of 719,000 in 1991 to 634,000 in 1998, according to a 1998 study by the Hokkaido University Slavic Research Center. The Sakhalin government is seeking opportunities to train its own workforce to fill the new jobs that will come with oil development.

Sakhalin’s timber industry remains stagnant and is in need of additional investment, particularly in the area of value-added processing of the basic raw materials, Farkhutdinov said. Fishing is improving because of the increased efficiency of the fleet, and investments in hatcheries that have boosted the return of salmon to the island.

Sakhalin’s coal production has fallen, and the governor sees it as another area that needs outside investment, particularly in facilities for export of the resource. Sakhalin also has an emerging tourism industry.

Oil and gas development is the greatest opportunity for the region. Over the next decade the government anticipates the expenditure of $8 billion in capital investment to develop the Kirinskoe and Lunskoe fields, Farkhutdinov said. Activity will intensify as construction of offshore facilities takes place in 2002 through 2006.

Pipeline concerns mirror Alaska

“We’re following in your footsteps but we’re a little ahead of you because we are building two pipelines at once,” she said.

The lines will traverse more than 600 kilometers of challenging terrain. Sakhalin has its own environmental concerns and concerns about the effect of pipelines on migratory reindeer. Sakhalin also wants to see natural gas transported overland through the island to so the population can tap into the lines for local energy needs. The government fears offshore lines will bypass the local population and citizens will have no direct benefit from the gas. The Sakhalin government wants to use natural gas for electrical generation and industry because of its clean-burning characteristics.

Sakhalin must also deal with Russian critics of Sakhalin oil development.

“Voices say these projects are unprofitable and unnecessary for Russia,” Farkhutdinov said, but he added that support is building because of anticipated higher wages and the resultant increases in the standard of living. Many Sakhalin workers are not unemployed, but they are only partially employed, he said.

The island plans a large liquefied natural gas plant at tidewater, as well as export oil terminals. The LNG plant will be the first in Russia and will have a capacity of 10 million tons per year. Japan and Korea are interested in Sakhalin gas, and ExxonMobil is studying the feasibility of an undersea line to China, Pavlova said. The number one priority of the Russian government however is the domestic market and the gasification of Far East Russia.

Pavlova said progress is complicated by the complex nature and size of the oil projects, which necessitate the participation of a number of players. Agreements must be reached between Russian oil companies and the multinationals, and a federal energy panel controls the entire process.

“The finishing (of negotiations) is so difficult, there are a lot of suggestions,” she said.

Despite complications, Farkhutdinov sees an overall picture of what Sakhalin can be, and he identifies the driver of Sakhalin’s future prosperity.

“Ten years hence, my goal is for Sakhalin to be considered as one of the five major hydrocarbon regions of the world,” Farkhutdinov said.

Farkhutdinov met with Gov. Tony Knowles on July 11. Farkhutdinov and Sakhalin delegations have visited Alaska previously to encourage commercial relations between the regions.