Sakhalin-II

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The Sakhalin II (Russian: Сахалин-2) project is one of the biggest oil and gas developments in the world. Two oil and gas fields are being developed offshore Sakhalin Island in the Sea of Okhotsk: Piltun-Astokhskoye and Lunskoye. Associated infrastructure has been constructed onshore. Piltun-Astokhskoye is primarily an oil field and Lunskoye is primarily a gas field. The project is managed and operated by Sakhalin Energy Investment Company Ltd. (Sakhalin Energy).

Sakhalin II is of vital importance to Russia's future energy policy. For this reason, in 2006 the Russian government targeted the foreign owners of the development, forcing them to sell a majority stake to Gazprom.^[1]

The field is situated in an area previously little touched by human activity, causing various groups to criticize the development and the impact it will have on the local environment.^[1]

Contents 1 History 2 Technical features 2.1 LNG 2.2 Oil export terminal 2.3 Platforms 2.4 Onshore processing facility 2.5 Pipeline 2.6 Offshore pipelines 2.7 Infrastructure upgrade projects 3 Environmental issues 3.1 Socio-economic issues and financial responsibility 3.2 Visible impacts on rivers/streams 4 References 5 External links

[edit] History

The first ever Production Sharing Agreement (PSA) was completed with Russia in 1994, with the signing of the Sakhalin II project consortium. In the Piltun-Astokhskoye field in July 1999 production began from the Molikpaq platform, Vityaz Complex, and in September 1999 the first crude was exported.^{[citation needed]} The consortium Sakhalin Energy had a contract to produce gas without a local partner but this changed in 2006 when, under political pressure, it was forced to sell a majority stake to Russian state energy company Gazprom.^[1]

[edit] Technical features

The two fields contain an estimated 1,200 million barrels (190,000,000 m³) of crude oil and 500 billion cubic meters (18 trillion cubic feet) of natural gas; 9.6 million tonnes of liquefied natural gas a year and about 180,000 barrels per day (29,000 m³/d) of oil will be produced.^[2] The total project cost until 2014 was originally estimated by Shell to be between US$9 and $11 billion. However, the costs turned out to be substantially underestimated and in July 2005 Shell revised the estimate upwards to $20 billion, causing much consternation among analysts and Russian business partners alike.

There are six main sub-projects:

• Field development in the Piltun-Astokhskoye oil field,
• Field development in the Lunskoye gas field,
• Upgrading infrastructure on Sakhalin Island (IUP — Infrastructure Upgrade Project),
• Constructing a 780 miles (1,300 km) oil and gas pipeline system from the north east coast of Sakahlin to Prigorodnoye on Aniva Bay,
• Building an onshore processing facility (OPF), an oil export terminal (OET) and
• liquefied natural gas (LNG) plant.^{[citation needed]}

[edit] LNG

The Sakhalin II LNG plant is the first of its kind in Russia. It is located in Prigorodnoye in the south of Sakhalin Island, 13 kilometres (8 mi) east of Korsakov. It will receive, treat, process and liquefy natural gas. Construction of the LNG plant was carried out by OAO Nipigaspererabothka (Nipigas) and the KhimEnergo consortium, together with two Japanese companies Chiyoda Corporation and Toyo Engineering.^{[citation needed]}

A special gas liquefaction process was developed by Shell for use in cold climates such as Sakhalin, based on the use of a double mixed refrigerant (DMR). This advanced technology was adapted to ensure maximum production efficiency in the very, cold conditions of Sakhalin’s winters.^{[citation needed]}

The complex includes:

• Two 100,000 m³ LNG storage tanks
• An LNG jetty
• Two LNG processing trains, each with a capacity of 4.8 million tons of LNG per annum
• Two refrigerant storage spheres, 1,600 m³ each (gross capacity) for propane and ethane storage
• A diesel fuel system
• A heat transfer fluid (HTF) system for the supply of heat to various process consumers
• Five gas turbine driven generators with a total capacity of around 129 MW electrical power
• Utility systems including instrument air and nitrogen plants and diesel fuel systems
• A waste water treatment plant to treat both sewage water and coil-containing water.^{[citation needed]}

The plant has been designed to prevent major loss of containment in the event of an earthquake – i.e. no major loss of LNG - and to ensure the structural integrity of critical elements such as emergency shut down valves and the control room of the plant. If necessary, the plant can safely be shut down.^{[citation needed]} Royal Dutch Shell estimates that the LNG plant will have the ability to meet eight percent of the world’s current LNG demand, 9.6 million tonnes of LNG per year.^{[citation needed]} The consortium is examining the possibility of adding another train.^[3]

The LNG plant has two LNG double-walled, storage tanks with a capacity of 100,000 m³ each. LNG will be exported via an 805 metres (2,640 ft) jetty in Aniva Bay. The jetty is fitted with four arms – two loading arms, one dual purpose arm and one vapour return arm. The upper deck is designed for a road bed and electric cables. The lower deck is used for the LNG pipeline, communication lines and a footpath. LNG is pumped from the storage tanks into the parallel loading lines which are brought to the LNG jetty. At the jetty head, the pipelines are connected with the jetty's four loading arms. The water depth at the tail of the jetty is 14 metres (46 ft). The jetty will service LNG tankers which have capacities of between 18,000 m³ and 145,000 m³. Loading operations are estimated to take from six to 16 hours, depending on vessel capacity. The jetty will be able to handle loading of around 160 LNG carriers per year.^{[citation needed]}

The LNG plant was inaugurated on 18 February 2009. The first cargo is expected to load to the LNG carrier Grand Aniva at the end of March 2009.^[4] Contracts for the supply of LNG have been signed with:

• Kyūshū Electric Power Company: 0.5 million tonnes per annum - 24 years (June 2004)
• Shell Eastern Trading Ltd: 37 million tonnes over a 20 year period (October 2004)
• Tokyo Gas: 1.1 million tonnes per annum - 24 years (February 2005)
• Toho Gas: 0.5 million tonnes per annum - 24 years (June 2005)
• Korea Gas Corporation: 1.5 million tonnes per annum - 20 years (July 2005)
• Hiroshima Gas Co.Ltd: 0.21 million tonnes per annum -20 years (April 2006)
• Tōhoku Electric Power Company: 0.42 million tonnes per annum - 20 years (May 2006)
• Osaka Gas: 0.20 million tonnes per annum - 20 years (February 2007)
• Chūbu Electric Power Company: 0.5 million tonnes per annum - 15 years (August 2007)^[5]

[edit] Oil export terminal

Located on Aniva Bay, 500 meters east of the LNG plant, its total storage capacity will be 1.2 million barrels (190,000 m³) in two tanks (about six days pipeline throughput). A underwater pipeline to a tanker-loading unit (TLU), which is located about 5 kilometres (3.1 mi) offshore in the bay can load oil at a rate of 50,000 barrels (7,900 m³) per hour.^{[citation needed]}

[edit] Platforms

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• The Molikpaq Platform (PA-A)
  • Originally a drilling rig from Arctic Canadian waters
  • Built to operate in severe ice conditions
  • 16 kilometres (9.9 mi) offshore
  • 120 metres (390 ft) wide
  • Weight 37,523 t
  • 150 personnel
  • Ballast 278,000 m³ sand
  • Temperatures offshore: down to −70 °C (−90 °F) wind chill

• Piltun Astokhskoye Platform (PA-B)
  • Four legged concrete gravity substructure engineered and constructed by Aker Kværner Technology AS and Quattrogemini OY
  • Topsides designed by AMEC, construction by Samsung Heavy Industries, transported and installed by Saipem by float-over method. At 28,000 tonnes, one of the largest floatover installations ever.
  • Construction began - 4Q 2003
  • Start of production – 4Q 2007
  • Water depth 32 metres (100 ft)
  • Living quarters for 100 permanent and 40 temporary personal
  • Capacity:
    • Oil approximately 700 thousand barrels per day (110,000 m³/d)
    • Associated gas 100 million ft³/d (2.8 million m³/d)
  • PA-B platform was installed by Saipem on 5 July 2007 by float-over method.

• Lunskoye Platform (LUN-A)
  • Four legged concrete gravity substructure engineered and constructed by Aker Kvaerner Technology AS and Quattrogemini OY
  • Topsides designed by AMEC, construction by Samsung Heavy Industries, Transported and Installed by Saipem by float-over method.
  • Construction began - 3Q 2003
  • Start of production – 1Q 2007
  • 15 kilometres (9.3 mi) offshore
  • Water depth 48 metres (160 ft)
  • 90 permanent and 36 temporary personnel
  • Capacity:
    • Gas approximately 52 million m³/d (1,8 billion ft³/d)
    • Peak liquids and condensate about 8,000 m³/d (34,000 bbl/d)
    • Peak oil 16 thousand barrels per day (2,500 m³/d)
  • LUN-A platform was installed by Saipem on 23 June 2006 by float-over method.

[edit] Onshore processing facility

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• 7 kilometres (4.3 mi) inland inline with Lunskoye
• Construction: BETS joint venture:
  • Technostroyexport (Russia)
  • Enka İnşaat ve Sanayi A.Ş. (Turkey)
  • Bechtel (US)
• Cost: US$250 million
• Construction commenced 2nd half 2003
• Production start-up - Q4 2005 to Q4 2006.
• 100 MW power plant
• Capacity
  • Gas: 1.8 billion standard cubic feet per day (51 million m³/d)
  • Condensate/oil: 60,000 barrels per day (9,500 m³/d)

[edit] Pipeline

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Phase two in the project is the construction of two 800 kilometres (500 mi) pipeline systems from the fields on the northeastern edge of the island to a Liquefied Natural Gas (LNG) and an Oil Export Terminal (OET) at the south end. The US$1.2 billion pipeline was awarded to a consortium of two Russian companies Starstroi and LUKoil-Neftegazstroi together with two European companies Saipem SA and AMEC Spie Capag. The project was estimated to employ between 5,000 and 6,000 people from design to completion in December 2006.

The pipeline includes:

• 126 kilometres (78 mi) of swamp crossings
• 110 kilometres (68 mi) over mountainous routes
• 1,000-plus (mainly small) river crossings
• 18 rail crossings
• 10 road crossings.
• Trench buried (with 0.8 to 1 metre (2.6 to 3.3 ft) cover on top of pipe)
• Block valves: 51 gas; 108 oil; 6 multiphase (all remotely operated)

[edit] Offshore pipelines

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The entire offshore pipeline system with a total overall length of 300 kilometres (190 mi) was installed by Saipem. The system consists of:

• Two 42 kilometres (26 mi) x 356 millimetres (14 in) pipelines from Piltun-Astokhskoye B platform (PA-B) to shore.
• Two 17.5 kilometres (10.9 mi) x 356 millimetres (14 in) pipelines from Piltun-Astokhskoye A platform (PA-A or Molikpaq) to shore.
• Two 13.5 kilometres (8.4 mi) x 114 millimetres (4 in) pipelines from Lunskoye Platform (LUN-A) to the shore.
• One 13.5 kilometres (8.4 mi) x 762 millimetres (30 in) pipeline from shore to LUN-A to provide gas to the facility.
• One 5.5 kilometres (3.4 mi) x 752 millimetres (30 in) tanker loading line from the OET (Oil Export Terminal) to the TLU (Tanker Loading Unit) in Aniva Bay.

[edit] Infrastructure upgrade projects

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Sakhalin II will create permanent work for up to 2,400 people and jobs for an estimated 10,500 more during the construction period. Together with Sakhalin-I, unemployment should remain low and island improvements greatly expanded. To complete the plants and pipeline, Sakhalin Energy will spend US$300 million to upgrade the islands infrastructure: roads, bridges, waste management sites, airports (including one at Nogliki), railways and ports, at more than 50 construction sites.^{[citation needed]}

• Sakhalin Western Marine Port: To allow for the inbound receipt of Phase 2 construction materials including pipeline and Onshore Processing Facility cargo, the Port of Kholmsk, on the southwest part of the island, has been upgraded. Work includes: dredging works, quayside works, installation of rail sidings, access roads, 4 x 20 t and 1 x 32 t gantry cranes erected, Berth 5 has been refurbished, final works at the port including office and warehouse upgrades are currently ongoing.
• Federal Roads and Bridges: 39 bridges & bridge approaches, bridge and culvert construction, 16 kilometres (9.9 mi) of federal roads are being reconstructed, and a further 12 kilometres (7.5 mi) of federal carriageway is being asphalted.
• Onshore Processing Facility (OPF) Site Works: Temporary site works at the Onshore Processing Facility (OPF) site, including construction of an 115,000 m² Site Construction Camp Area and a 70,000 m² Temporary Works Area, 6 kilometres (3.7 mi) Beach Access Road (BAR) and an 11,000 m² Beach Laydown Area (BLA) at near-by Lunskoye beach.
• Onshore Processing Facility Southern Access Road (SAR): 76 kilometres (47 mi) of access roads to the OPF facility. Including the SAR (0-57 km) project, involving redesigning and upgrading 57 kilometres (35 mi) of road including 13 bridges, the SAR (57 to 76 km), involves the construction of 20 kilometres (12 mi) of new road.
• Railways: Railway upgrades, 9 separate rail sidings, and 2 new passing loops on the main line (west coast).
• Phase 2 Project Office: 250-person, 3-story project office facility in Yuzhno-Sakhalinsk
• Phase 2 Accommodation Facility: 13 two-story apartment buildings (104 units), accommodation facilities near Zima Highlands, a multi-use recreation facility, a mechanical and electrical building and a free-standing security building.
• LNG Site Works: general site clearance, archaeological works, demolition works and the removal of submarine cables from Aniva Bay.
• Municipal Works: Road and bridge upgrades for 7 Island’s Municipalities: Dolinsk, Kholmsk, Korsakov, Makarov, Nogliki, Poronaysk and Yuzhno-Sakhalinsk.
• Prior to infrastructure upgrade all construction footprints had to be cleared of Unexploded Ordnance (UXO) and Russian and Japanese War Dead that were a legacy of the 1945 conflict on the island. There were additional UXO remaining from Russian military training during the Cold War. This remediation work was supervised by William DG Hunt.^{[6][citation needed]}

[edit] Environmental issues

One key concern from environmental groups is that the Sakhalin II project will harm the western gray whale population. The whales summer feeding grounds are close to the project's offshore platforms in the Sea of Okhotsk.^{[7] [8]}

In 2006 IUCN set up the Western Gray Whale Advisory Panel (WGWAP). Its members are marine scientists who give independent advice to Sakhalin Energy about managing any potential risks to the western gray whales.^[9][10] The Russian Academy of Sciences has identified an increasing population of western gray whales in the Sea of Okhotsk during a photo identification research programme.^[11] However, in February 2009 the WGWAP issued an urgent warning that the number of western gray whales observed in the primary (near shore) feeding area had decreased and the panel called for a "...moratorium on all industrial activities, both maritime and terrestrial, that have the potential to disturb gray whales in summer and autumn on and near their main feeding areas." ^[12] In a meeting in April, 2009, the WGWAP reiterated its urgent plea for a moritorium. Sakhalin Energy then agreed to suspend its planned summer 2009 seismic testing.^[13]

The Far Eastern Regional Hydrometeorological Research Institute (FERHRI) are involved in regular monitoring of the western gray whales near the oil and gas developments on the Sakhalin Shelf.^[14]

Other concerns are that the project will threaten the livelihood of tens of thousands of fishermen, destroy the key salmon fishing area off the island by dumping one million tons of dredging spoil waste into the sea, and imply a long-time threat of a large oil spill in the Sea of Okhotsk and Sea of Japan.^[15] Dredging of Aniva Bay was completed in 2005. In 2005 the salmon harvest was recorded as an all-time high of more than 134,000 tonnes. In 2007 this record was overturned with a salmon catch of 144,181 tonnes.^[16]. Environmental monitoring reports are publicly available. ^[17]

Sakhalin Energy paid compensation of $US110,000 to the Russian Federation to cover potential fish impacts from the Sakhalin II project. This compensation was paid regardless of whether any impact was recorded on the fishing industry or not. Part of these funds was used to set up thriving salmon hatcheries on Sakhalin Island.^[18]

[edit] Socio-economic issues and financial responsibility

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In 2005, the European Bank for Reconstruction and Development, a potential financier of the Sakhalin II project deemed Sakhalin-II 'unfit for purpose' due to environmental concerns.^[19]

Around the same time (July 2005), a Russian court upheld the appeal of environmentalists who claimed in a petition that Sakhalin Energy's Environmental Impact Assessment, was inadequate. Sakhalin Energy denied the claims and stated them as vague and inaccurate.^[20]

The environmental and social concerns came to a head at the end of November 2005 when the Chief Executive of WWF, Robert Napier, said that it would have a "negative impact on Sakhalin's people and environment". The timing of this attack was difficult for Shell and the other consortium partners as they were seeking financing for the project from the European Bank for Reconstruction and Development (EBRD). The WWF asserted that Sakhalin-2 threatens marine life as well as potentially damaging the local communities in the region. The EBRD is required to adhere to the "Equator Principles" that require all lendings it makes to meet ethical guidelines. Sakhalin Energy responded to the WWF's assertion by saying that the project meets lenders' policies and that environmental and social issues have been met.^[21]

In September 2006, Sakhalin Energy briefly suspended work on its pipelines. Oleg Mitvol, the deputy chief of the Russian Federal Service for Natural Resources, had announced in early August 2006 that, according to his data, Sakhalin Energy failed to take all actions required to eliminate the danger of the mud flow. ^[22] This was supported by President Vladimir Putin.^[23]

NGOs concerned about the impact of the project on the endangered Western Gray Whale population supported a related re-evaluation process by the Russian environmental ministry.^[24]

Energy analysts believed alleged violations of the environmental regulations were a pretext by the Russian government to pressure Sakhalin Energy to sell a large stake to the state gas monopoly, Gazprom.^[1] On 11 January 2007, EBRD withdrew its consideration of financing for Sakhalin II, claiming that Gazprom's acquisition of the controlling share of Sakhalin II resulted in a to the project making it is unfeasible for the EBRD to pursue the current project.^[25] Meanwhile, environmental organizations contend that Sakhalin II had chronically and substantially violated EBRD’s environmental policy.^[26]

On 22 October 2006 an article in The Observer reported that a leaked internal report by the Russian government estimated that the final cost would now reach US$28 billion.^[27] Alfred Donovan and his son John Donovan, the owners of a website Royaldutchshellplc.com outspokenly critical of Shell management, claimed to have supplied important information to the Russian government since September 2005 concerning Sakhalin II project costs and environmental issues including leaked internal correspondence between senior Shell managers. Recipients of the information purportedly included Oleg Mitvol, the aforementioned Deputy Head of RosPrirodNadzor, vividly described in a Guardian newspaper article as a "Kremlin attack dog".^[28] In November 2006, Oleg Mitvol confirmed in an interview published in "This Week in Argus FSU Energy", that the evidence on which a prosecution against Sakhalin Energy claiming US$10 billion in damages was being mounted, was supplied by John Donovan of royaldutchshellplc.com.^[29]

Amid all these controversies on 21 December 2006, Gazprom took control over a 50%-plus-one-share stake in the project by signing an agreement with Royal Dutch Shell. Russian President Vladimir Putin attended the signing ceremony in Moscow and indicated that environmental issues had been resolved. In a news report on 23 December 2006, The Sunday Telegraph claimed that Shell had been bullied into the deal by the Russian authorities.^[30] It has been pointed out that the Russian moves on Sakhalin are as much nationalist and stragetic as they are economic.^[31][1] When LNG starts being produced, Sakhalin-2 will produce 6% of the world's overall gas supplies. It is thought that, LNG being more transportable than other forms of gas, a world LNG cartel will be feasible and allow major producers like Russia to influence gas prices more easily than at present.^[1]

According to an article published by Upstreamonline.com on 20 March 2008, under the headline "Shell reserves on a steady course", Shell lost 402 boe - barrels of oil equivalent - as a consequence of "the sale of half its stake in the $20 billion Sakhalin 2 project".^[32] An article published by The Boston Globe on 23 August 2008 said "Shell Oil was forced to yield control of its operations off Sakhalin Island in exchange for a payment of $7.4 billion from state-dominated Gazprom." It went on to say "Most outside analysts estimate that Shell's share was worth $15 billion to $17 billion."^[33]

On 29 March 2007, in an article published by Kommersant under the headline "Russian Authorities Pull Out of Dispute with Sakhalin Energy", Mitvol was quoted as saying that RosPrirodNadzor would not be taking any action in the courts in relation to environmental violations by Sakhalin Energy and that Sakhalin Energy is willing to solve the problems. Mitvol is also reported as saying that Gazprom would be asked to pay for the unsolved problems.^[34]

On 9 October 2007, a firm of consultants (AEA) acting on behalf of potential lenders to the Sakhalin II project published a report with an Executive Summary which concluded that the project was largely in compliance with all the relevant environmental requirements. Where instances of non-compliance had been identified, these were either minor or plans to rectify these were already underway.^[35] However, environmental organizations subsequently produced a critique of the AEA report which concludes that the Executive Summary does not accurately reflect a large number of non-compliances with relevant environmental requirements that are documented in the 300+ page report.^[36] On August 31, 2008, The Guardian published an article citing documents obtained from the UK Freedom Of Information Act that indicate that Shell attempted to manipulate the editing of the AEA report to lenders in order to downplay negative environmental impacts documented in the report.^[37]

In early March, 2008, Environmental Finance reported that Sakhalin Energy had withdrawn its applications for nearly a billion dollars in financing from the public export credit agencies of the United States and the United Kingdom. Sakhalin Energy reported that its withdrawal of its financing applications was due to the drawn-out and uncertain decision making process] by these banks.^[38] However, environmental groups contend that the drawn-out process was due to the fact that for five years the company failed to demonstrate compliance with these public banks’ environmental policies.^[39]

In June 2008 Sakhalin Energy signed Russia's largest project finance deal, securing a loan of $US 5.3 billion from the Japanese Bank for International Cooperation(JBIC) and a consortium of international banks. JBIC provided $US 3.7 billion of the funds.^[40][41]

[edit] Visible impacts on rivers/streams

The environmental NGO Sakhalin Environment Watch list the following environmental changes on its website:

• Pilenga River: Erosion control is visible on one bank but not on the other bank of the as of April 2006.
• Mereya River: Active slope erosion and water pollution as of July 2005.
• Woskresenkovka River: The clear river is threatened by the creation of a junction of two pipeline trenches filled with mud as of December 2005.
• Golubichnaya River: Normally this river would not be frozen solid in winter but the digging of the trench has provoked the complete lack of river flow as of December 2005.
• Bystraya River: The river ice is covered by soil as a result of the river crossing, which will result in additional contamination when the ice melts as of December 2005.
• Stolichnyi stream: Ploughed-up channel of spawning stream and active erosion and silted processes as of August 2005.^[42]

[edit] References

[edit] External links

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• Sakhalin-II Project website
• Gazprom's Sakhalin-II Project website
• The Sakhalin II Project: Latest News and information @ Shell.com
• Sakhalin Factsheet @ the Department of Energy's Energy Information Administration
• Yuzno.com: Sakhalin Projects News (English)
• Sakhalin Environment Watch An NGO campaigning against the Sakhalin-II
• World Wide Fund for Nature
• Sakhalin 2 problems postpone liquid gas supplies to the USA
• Discovery Channel: Build It Bigger: SAKHALIN OIL AND ICE
• [1]
• [2]
• [3]
• [4]
• Friends of the Earth report: "Sakhalin II - A Production 'Non-Sharing' Agreement, An Analysis of Revenue Distribution" by Dr. Ian Rutledge