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Sakhalin II is the most complex oil and liquefied natural gas (LNG) project currently under construction. It will add 5% to the world’s LNG capacity – enough to produce electricity for around 24 million homes.
In April 2007, control of the JV building the project, Sakhalin Energy Investment Company Ltd (Sakhalin Energy), passed from Shell to Gazprom. The agreement saw Shell’s share in Sakhalin Energy drop from 55% to 27.5%. This changed our role in the project. Two executive directors nominated by Gazprom were appointed in 2007. During 2008, there will be a further transition from Shell to Gazprom-nominated staff in a number of senior positions. But there will also be much continuity. Shell continues to provide technical services to the project. The operating agreement Sakhalin Energy used before the ownership change – with all its environmental and social requirements – continues to apply.
Sakhalin Energy’s support for the Sakhalin Indigenous Minorities Plan continued. The plan aims to mitigate possible impacts on the lives and livelihoods of indigenous people from oil and gas development and promote traditional livelihoods. By the end of 2007, 90 projects had been selected and financed under the plan, the first phase of which will run to the end of 2010. Sakhalin Energy has provided the funding ($1.5 million) and is a member of the supervisory groups charged with making sure the plan is carried out. The plan was singled out by The International Finance Corporation, the private sector arm of the World Bank, as a model of international “good practice.”
In late 2007, Sakhalin Energy’s environmental and social efforts were acknowledged by consultants AEA Technology, working on behalf of potential project lenders. AEA Technology concluded that “Sakhalin Energy’s … plans fully meet a large majority of the requirements against which the project has been assessed and there are examples of laudable best practice. Where non-conformances with requirements have been identified in the documentation, these are either minor in nature or else Sakhalin Energy has plans in place for their resolution.”
Sakhalin Energy continued to take advice from a long-term advisory panel of independent scientific experts, convened by the International Union for the Conservation of Nature (IUCN). The panel will monitor the project’s potential impact on the area’s critically endangered western gray whales through 2011. The project has made important changes in response to the panel's recommendations, including reducing the speed and noise levels of ships, and strengthening its response programme for oil spills. In 2007, AEA Technology concluded: “This long-term support of an independent panel of world-renowned experts is highly commendable and has the potential to play an important role in the protection of this [whale] population.”
In early 2008, Sakhalin Energy withdrew its request for loans from the US and UK governments’ export credit agencies. It was concerned that the agencies would not be able to come to a decision by mid-2008, when Sakhalin Energy aims to have the project financing completed.
