While oil development on Sakhalin Island dates to the 1920s, the economic crisis that followed the fall of the Soviet Union created a new drive in Russia to develop Sakhalin’s offshore oil and natural gas reserves.
The Russian government, unable to finance such development itself, divided Sakhalin’s offshore oil and gas fields into six major project areas—Sakhalin I through VI.
In 1994, Shell, Mitsubishi and Mitsui established the Sakhalin Energy Investment Company, which signed a production sharing agreement (PSA) with the Russian government to develop the Sakhalin II oil and gas deposits. In 1998, Shell began first phase of the Sakhalin II project, with $116 million in financing each from the U.S. Overseas Private Investment Corporation (OPIC), the European Bank for Reconstruction and Development (EBRD), and Japan Bank for International Cooperation (JBIC).
Phase 1 involved the placement of a large drilling platform in the waters off the northwest coast of Sakhalin Island. Since the construction of the “Molikpaq” platform, locals have reported a reduction in both the quality and the quantity of saffron cod fishing, an important part of the local diet.
Shell then expanded the operation to Phase 2. This included the construction of a new offshore oil platform and a new gas platform, construction of underwater pipelines from these platforms to land, additional pipelines carrying oil and gas 800-kilometers over land to the world's largest liquified natural gas (LNG) production plant and LNG terminal at the south end of the island. Each of these aspects of the expansion of Sakhalin II continue to raise significant environmental and social concerns, including threats to the feeding grounds of the critically endangered Western Pacific Gray Whale and to the livelihoods of Sakhalin’s fishing communities and indigenous peoples.
Chronic
violations of public and private bank environmental policies contributed to the 2007 withdrawal
of the European Bank for Reconstruction and Development and led SEIC to
abandon its attempt to receive nearly one billion dollars in public financing
from the US Export-Import Bank and UK Export Credit Guarantee Department. However,
in 2008, the public Japan Bank for International Cooperation, three private
Japanese banks and three European private banks provided an estimated $5
billion in financing for Sakhalin II.
