NGO concerns over Shtokman (Штокман)
December 8, 2011 2 Comments
From the Norwegian Environmental NGO ‘Bellona’ I have come across a letter to Helge Lund, the president of Statoil, to Aleksey Miller, chairman of the Board of Directors of JSC “Gazprom”, and to Pierre Nerguararian, general director of Total Russia. The objective of the letter was address concerns that the environmental group had over the potential implications of the Shtokman project. Below are some highlighted excerpts.
*If you would like more information about the Shtokman project, please see ‘The Shtokman Field (Штокмановское Месторождение)‘*
“The Russian Federation does not possess a marine service for spill response or a system for satellite monitoring of hydrocarbon spills in icey conditions. This translates into additional financial expenditures for creation of an infrastructure for elimination of accidental situations that must be considered, guaranteed and provided for already at the stage of project development”
This may be one of the most credible assertions. A major spill in the northern Barents Sea would not require the same style of cleaning as would BP’s most recent spill of the Gulf of Mexico for example. Thick layers of ice and icebergs would provide clean-up crews with significant obstacles. If there is more-so a lack of, or insufficient satellite monitoring system in place, it will limit Russia’s ability to respond. *I would go on to joke that Putin or Medvedev would take part in an heroic photo-op, perhaps flying a helicopter over top the spill in order to assess and map damaged zones.*
They further argued that guaranteed financing would be required
“sufficient for covering payment of damages that may result from accidental consequences to the environment (both natural and socioeconomic) as required by article 10 of Federal Law “On Industrial Security of Dangerous Industrial Installations”
This seems to be the case, at least, within the western world, as, for example, nuclear power plants are to put required amounts of money aside per every unit of electricity produced so that in the future there will be funding available to assist in the (debatably) proper removal and storage of the spent nuclear fuel. The law is the law and Shtokman Development AG would be obliged to follow this.
They made several references to the environmentally sensitive areas of the Barents sea that this project could tread upon. The most significant of which would include the bird populations that the Barents sea is in part famous for. Secondary concerns would include the
“effect of gas hydrates on flora and fauna, effect on climate, including economic evaluation of measures for minimization and prevention of or compensation for these effects.”
They go on to argue further that
“Shtokman Development AG currently lacks any climate-related policy, which can lead not only to the increase of the project’s effect on climate change, but also to an incorrect view of the profitability of the project due to underestimating risks associated with climate change. These risks include: changes in the quantity and distribution of precipitation, ice cover, increase of storms and hurricanes, sea-level rises, changes of coast line, higher incidence of disease among the population and many other aspects that require evaluation at the planning stages of the project.”
The above excerpt presents us with nothing new. The main objective of most environmental NGO’s is to force the costs related to negative social externalities from the pocketbooks of the externality producing firms that are in question. I am sure that this has been the run of the mill criticism of each and every offshore operation that has taken place off the Russian costs.
What will occur, however, through natural market forces will be the assistance to local populations via hospital upgrades, local infrastructure upgrades, and a larger press spotlight. There will be approximately 10,000 workers needed to take part in the construction of the LNG plant, among other things, along with a permanent future housing of 600 Shtokman employees. With this there are sure to be other positive socio-economic spillovers and not just negative ones.
According to the assessment presented by representatives of the company, a full accounting of environmental factors will make the project unprofitable.
This is the bottom line. Profitability. NGO’s know that major shareholders are already questioning the overall profitability of the project, asking the Russian government for tax breaks / incentives. They also know that if they can get any of their major shareholders to doubt their profitability, they may be able to help leverage the project into the graveyard. It seems to me as though the Russian government will, regardless, end up providing for Shtokman’s environmental externalities. If major shareholders are not sure about expected profits, they will simply demand compensation in some form from the Russian government.
Visit Bellona’s article on Shtokman here.