[The Oil Patch]

Trans-Alaska Pipeline System: Economics

Trans-Alaska Pipeline System: Environment

Reports and Research Memoranda


Richard A. Fineberg

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(Archived Nov 8, 2005)

Oil Industry Performs Poorly
On International Pipeline Projects

February 6, 2005

As drilling advocates try to push the U.S. Congress into believing that the oil industry can put a major oil field in the middle of the Arctic National Wildlife Refuge safely and responsibly - without environmental damage or harm to the wilderness qualities of that national treasure - mounting evidence from around the world suggests that they can't.

On the remote, north end of Sakhalin - that long, thin island off the eastern coast of the Russian Far East, just north of Japan - reindeer herder Anatoly Makarov stands on the site where the Shell-led Sakhalin Energy Investment Company's major oil and gas pipelines from off-shore platforms will soon come ashore. The project, led by Royal Dutch/Shell, includes offshore production platforms and an 800-kilometer, two-pipeline system between this point and an export terminal on the southern end of the island. Less than 100 kilometers away, ExxonMobil is busy constructing facilities for a competing mega-project with separate infrastructure and pipelines.


Sakhalin reindeer herder
Anatoly Makarov
(R.A. Fineberg photo)


Makarov is one of the few reindeer herders remaining in remote north Sakhalin.

Confronting what they say is an intransigent industry that ignores their concerns and violates its promises, as well as international standards, the Sakhalin and Russian Associations of Indigenous Peoples of the North launched a direct, civil protest against the Sakhalin oil development projects in January 2005. The Nivkh, Nanai, Ulta and Evenki people of northern Sakhalin are calling for an independent environmental impact assessment of their plight, the creating of an indigenous people's development fund and a special working group to assure implementation of these goals. (See: "Indigenous Peoples' Protest on Sakhalin II and the Need for Independent Cultural Impact Assessment and Indigenous Peoples' Fund," letter from Pavel Sulyandziga, I Vice President, Russian Association of Indigenous Peoples of sthe North, Siberia, and Far East, to Merrill, President and Chairman, Export-Import Bank of the U.S., Jan. 21, 2005.)

After touring the proposed right-of-way in 2003, this writer questioned whether Sakhalin Energy had taken sufficient measures to mitigate the risks associated with its crossing of numerous seismic faults. (See: Seismic Risk and the Onshore Pipeline Portion of the Sakhalin Energy Investment Company's Sakhalin-II Phase 2 Project: Unanswered Questions, Feb. 2005) Another major concern is that the Sakhalin Energy pipelines must cross hundreds of streams, many of which are home to salmon that provide an important commercial resource, as well as food for a subsistence economy. Despite pre-construction pledges to protect Sakhalin's environment in general and its salmon streams in particular, unconfirmed reports and photographs taken on the right-of-way during the first year of construction suggest otherwise.

In April 2004, the European Bank for Reconstruction and Development (EBRD) delayed approval of a project loan because Sakhalin Energy's seven-volume Environmental Impact Assessment (EIA) had failed to provide sufficient information about project plans. The EBRD has requested specific information on a variety of questions in an effort to assure that construction plans provide sufficient environmental protection. Meanwhile, the project is proceeding full-speed ahead, largely on internal financing by Shell and its co-sponsors, Mitsui and Mitsubishi of Japan. (Information from Pacific Environment and World Wildlife Fund.)

On the other side of the former Soviet Union, another major pipeline, presently nearing completion, is in trouble. Although the BP-led Baku-Tbilisi-Ceyhan (BTC) pipeline has yet to carry oil, the epoxy coating applied to field-welded joints at 40-foot intervals on the 1,600-kilometer pipeline has already failed at numerous sites in the mountainous republic of Georgia and neighboring Azerbaijan. According to press accounts and a British parliament investigation, BP selected an untried field joint coating product for the pipeline that has proven to be incompatible with the epoxy protection for the pipe itself, which is factory-applied before the pipe is delivered to the field. More than one-quarter of the tested joints have already begun cracking, creating gaps in the protective coating that can lead to corrosion - the number one cause of buried pipeline leaks - during the line's estimated 40-year life. BP feels there is no problem and therefore is resisting pressures to inspect the defective coating at every pipe joint along the 1,600-kilometer pipeline and replace it, as necessary, or devise another way to mitigate corrosion risk. (See: Terry Macalister, "Cracked joints found in BP's Georgia pipeline," The Guardian, Nov. 17, 2004.)

Problems such as these may be the harbingers of things to come in Siberia and the Russian Far East. The Russian government recently announced that it had selected the route and the terminal and port for a 2,600-mile oil pipeline from central Russia, near Lake Baikal, to the Pacific Coast. According to a recent article in the New York Times, the plans have drawn fire from environmentalists because the terminal was moved from Vostochny, Russia's principal Far East industrial port, to an undeveloped site at Perevoznaya Bay. This sandy bay is used in summer by ferry loads of beachgoers from nearby Vladivostok. To reach the new terminal, tankers will have to pass Russia's only maritime nature reserve, a collection of islands whose unusual biodiversity is fostered by the meeting of boreal and subtropical currents. This corner of the Pacific is also home to some 50 endangered species, including the Amur leopard. (See: James Brooke, "Disputes at Every Turn of Siberia Pipeline," New York Times, Jan. 21, 2005, p. C1.)

As World Wildlife Fund pointed out in January 2005, many of the problems associated with major international oil and gas projects could be prevented or, at least, identified and resolved more effectively, if the World Bank and other international financing institutions would require a strategic environmental assessment (SEA). (See: World Wildlife Fund, "World Bank must insist on strategic assessments for 'megaprojects'," Jan. 21, 2005 [news release].) Alaska's experience with long-distance oil pipelines from a remote production site suggests that cost-cutting pressure by management leads to problems that create undue environmental risk. It requires constant vigilance to make sure that an industry that operates in a competitive environment does not cut corners on environmental protection. This effort also requires expertise to deal with the different conditions and problems a pipeline encounters on its cross-country journey. Citizens along a pipeline route could develop that expertise through the formation of citizen oversight groups. Alaska has led the way in the creation of citizens' advisory groups for marine transportation issues. But the industry has resisted the formation of an analogous citizens' oversight group for the 800-mile Trans-Alaska Pipeline System (TAPS). (For discussion of citizen oversight groups, see: Richard G. Steiner, "Models of Public Oversight of Government and Industry," in Caspian Oil Windfalls: Who Will Benefit? [Caspian Revenue Watch, 2003] pp.71-88.)


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