Russian interference in Sakhalin oil project

After reading a news report in this week’s New Scientist about the Russian government’s decision to block the Sakhalin Energy consortium’s plans to drill for oil and gas on Sakhalin Island, I decided to look into this further.

The Sakhalin-2 project is under joint development by the Anglo-Dutch Shell oil company, and the Japanese firms Mitsui and Mitsubishi, with Shell holding a 55% stake. The Sakhalin-2 field is estimated to contain around a billion barrels of oil and 500 billion cubic metres of natural gas, and is due to open in 2008. Much of the on-site work has been completed, but there is ongoing development of pipelines to transport the oil and gas to Japan.

According to New Scientist, Russia has blocked the project on environmental grounds, but there is a lot more to it that that. Far from it being an issue of environmental principal, it seems that the Russians are attempting to muscle in on the deal after most of the legwork has been done by others, and obtain a sizeable stake for its state-owned oil and gas company, Gazprom. This is cited as further evidence of Kremlin manoeuvring in the energy sector for political ends.

The Japanese are up in arms about the Russian government’s action in witholding environmental consents on the development, and not only because they are in dispute with Russia over the territorial status of the nearby Kuril Islands. If the project is aborted, it could deal a major blow to Japanese energy imports, but Japan is poor in energy resources, and the country cannot afford to see the Sakhalin-2 project fail.

This is a story to watch, both for its geopolitical importance, and to see how it is reported – or not – in the western press.