Development and the Environment"
on the Sakhalin Offshore Oil and Gas Fields II
Copyright (C) 1999 by Slavic
Research Center, Hokkaido University.
All rights reserved
Lessons from Alaska for Sakhalin
- Safety Concerns at
- There are several
very important unanswered questions regarding the safety of operating
procedures at the FSO Unit. These include such issues as weather
operating conditions stipulating in what conditions a tanker and the
FSO must secure from offloading and disconnect from the mooring, what
the SALM hawser tension limits will be and how it will be monitored,
pilotage to be required in the exclusion area around the site, the
adequacy of the size of the exclusion area, what standby protocols will
be required during loading, the pre-transfer conference, verification
of Inert Gas System (IGS) operation, monitoring of loading rate and
pressures, substance abuse screening, and a pre-departure conference.
In response to such issues, SEIC has simply stated that "operational
procedures will be developed to address the concerns listed above."
- Spill Response Preparedness:
- As presently
planned, the oil spill response capability for Sakhalin is woefully
- SEIC states in the EIA simply that they will
mount "an adequate response in the event of a spill," without defining
exactly what they consider "an adequate response." There should be
response planning standards in Sakhalin as are required in Alaska to
have the equipment and personnel in place to respond to a maximum
probable discharge, which off Sakhalin should be considered to be the
loss of a full load from a VLCC, or 2 million barrels.
- The company also
states in its EIA that "response techniques for spills under ice-free
conditions are well established and are generally recognized as
effective worldwide." This is categorically not so, and leads to a
dangerous misperception that a major spill can be effectively
recovered. It must be understood that this has simply never occurred.
One of the best spill response in history was the response to the
"American Trader" spill off Huntington Beach, California in 1990 (when
the tanker broke loose from the offshore mooring) with just 25% of the
spilled oil being recovered in ideal conditions of calm seas and
extensive inventories of response equipment and personnel on hand. Most
responses recover less than 10% of the spilled oil, which is generally
inconsequential to the amount of biological damage the spill causes.
- It is apparent that SEIC is not planning on a
major spill. Importantly, there still exists no pre-approved process
for the use of chemical dispersants in the event of a spill. While
controversial in some arenas, dispersants can sometime offer the only
response tool available in a large, offshore spill. Confusion regarding
dispersant-use protocols can lead to delay in their application thus
rendering them ineffective. This must be clarified, and a sufficient
amount of dispersant and applicator aircraft should be readily
available to treat a maximum probable discharge. At a 1:20
dispersant-to-oil ratio, SEIC would need ready access to 100,000
barrels of dispersant to treat a 2 million barrel spill. Having access
to some amount of dispersant through contracts with East Asian Response
Limited (EARL) in Singapore and Oil Spill Response Limited (OSRL) in
the U.K. may or may not be helpful, depending on how fast the
dispersant can be transported to Sakhalin. In poor weather conditions,
no flights would be able to transport response equipment or dispersants
to the island. And, apparently SEIC only has a few hundred drums of
dispersant on-island. Also, it is evident that not enough ocean boom,
skimming capability, storage capacity, and trained response personnel
and vessels would be on hand for a major spill. Spill response
preparedness can have a very positive economic benefit to Sakhalin.
- Response planning
is particularly complicated in this instance in that a spill could
spread across international jurisdictions. The government of Japan and
the government of Russia should develop a clearly articulated agreement
as to spill response and command protocols if this were to occur. While
SEIC acknowledges that a spill from their facility could spread to the
coast of Japan and have therefor established liaison with the Japanese
Marine Disaster Prevention Center, a rigorous, cooperative response
protocol and command structure must be pre-established.
- Liability Standards:
liability is the primary incentive for responsible conduct by
industrial interests throughout the world. With adequate liability on
the line, oil companies will be motivated to design, construct, and
operate their projects as safely as possible. Conversely, without
adequate financial liability, even the most stringent government
regulation and oversight will not achieve a safe system.
- It is evident that the financial liability
standards for the Sakhalin operation are inadequate.
- Sakhalin Energy
states that they carry insurance coverage for various phases of the
project as follows:
period: US $100,000,000 including pollution damage and cleanup
period: Operator's Extra Expense (OEE) coverage of not less than US
$200,000,000, to cover costs of well blowouts including property
damage, personal injury, and pollution cleanup. This coverage will
continue during operational phase.
period: at start up of the Molikpaq, Sakhalin Energy will have General
Liability Insurance in the amount not less than US $150,000,000.
insurance: Sakhalin Energy will contractually require the owner of the
FSO to provide Protection and Indemnity coverage in the amount of US
$700,000,000 per incident.
tankers: The Russian Federation requires only US $81,000,000 liability
cap for tanker owners
- These amounts are simply inadequate. By
comparison, the cost to Exxon for the Exxon Valdez oil spill in Alaska
is likely to exceed US $10 billion, including private compensatory and
punitive damages, natural resource damages, criminal fines, and cleanup
costs. While this may seem extreme, the $81 million liability cap for
shuttle tankers in Russia is ridiculously low given that a spill of
comparable magnitude and consequence could occur there. To their
credit, SEIC publicly stated at the SRC Symposium in Sapporo that they
agree that the $81 million liability cap for tankers is insufficient,
and that Russia should consider raising this cap. Also, since a spill
could spread from Sakhalin into Japanese waters, standards for
liability in Japan should be considered here as well.
- Similarly, the
coverage for the operational phase of Sakhalin II is inadequate.
Sakhalin NIPImorneft estimates that a winter well blowout off Sakhalin
could spill as much as 230,000 barrels over a 20-30 day period, an
amount that is comparable to the official estimates of the amount
spilled by the Exxon Valdez.
- Also, because there would inevitably be a
drawn-out disagreement between the spiller, their insurer and the
government concerning damages in a major spill, a $1 billion response
and compensation fund similar to the U.S. "Oil Spill Liability Trust
Fund" should be established to expedite response and supplement oil
spill claims. Liability standards for this project should be assessed
much more carefully, and increased. As they stand now, they do not
provide adequate incentive for the safest operation possible.
- Another related
financial consideration for the government and people of Sakhalin is
the Production Sharing Agreement. The fact that the Sakhalin government
will only begin receiving royalties from the project after SEIC shows a
profit seems reasonable, but as companies are quite adept at burying
profits as costs with clever accounting practices, this issue should be
carefully reviewed. Oil companies have become so proficient at hiding
profits in the U.S. that they have avoided billions of dollars in
corporate taxes, leading to concerns that the U.S. has for quite some
time had a highly developed state of "corporate welfare." It is
important that the companies involved off Sakhalin not be allowed to
play a "shell-game" with earnings, thus delaying payment of royalties
to the local government.
- Regarding federal revenues from OCS oil and gas
development, it is recommended here that the Russian government
consider implementing legislation similar to that in the United States.
In the U.S., each year the Minerals Management Service (MMS) collects
and distributes about $3.5 billion from bonuses, rents, and royalties
from offshore oil and gas leases. Of this amount, $900 million/year is
to go to the Land and Water Conservation Fund (LWCF) to be used to
purchase protections on critical habitat areas, and $150 million/year
is to go to the National Historic Preservation Fund. While this has
been the law for many years, in practice much of these monies have been
used for deficit reduction and not been appropriated to their mandated
purpose. Presently, legislation is pending in the U.S. Congress to
fully appropriate these funds as originally intended. The LWCF provides
a 50/50 matching grant program with States and local governments to
acquire and develop public recreation areas and facilities, and federal
monies are used to purchase federal park lands. As of FY 1997, over
$4.3 billion has been appropriated from the LWCF for federal park
purchases and about $3.2 billion has funded over 37,000 park and
recreation projects by the State governments. In this way, rents from
non-renewable public resources are translated into long-lasting public
- In addition to adequate financial liability,
public oversight is an important factor in assuring the protection of
the environment. The author has proposed to the Governor of Sakhalin
that the government there establish a Regional Citizen's Advisory
Council to monitor government and industry vigilance during all phases
of the offshore oil operations. Such a council was established in
Prince William Sound, Alaska by the pipeline owner after the Exxon
Valdez spill, and funded by industry at approximately US $2
million/year. This council has been responsible for continuing
improvement in the safety of the oil transportation system in the
region. A Sakhalin Shelf Citizens Advisory Council (SSCAC) would
greatly enhance citizen confidence in the safety of the offshore oil
and gas development project. It should involve representatives of the
local indigenous community, commercial fishing industry, environmental
groups, scientific organizations/universities, local governments, etc.
It is also recommended here that the establishment of such a citizen's
council be considered in Japan.
- Sakhalin Energy
officials stated, correctly, at the SRC Symposium in Sapporo that the
safety of the oil production and transport system is largely a matter
of corporate culture.
- In keeping with this reality, it is proposed
here that SEIC establish, among other safeguards, a confidential
reporting system whereby employees can report potential problems
without fear of retribution by the company. Self-policing does have a
place in ensuring safety, and employees need a corporate environment
conducive to freely discussing problems without fear of losing their
- Clearly, the
government and oil industry have a long way to go to bring the Sakhalin
offshore oil operation up to a "best available technology" standard.
The potential consequences of not doing so should become evident in the