Sakhalin Island oil and gas fields

The Anglo-Dutch petrochemical multinational Shell is developing two oil and gas fields (Piltun-Astokhskoye and Lunskoye) off Sakhalin Island in Russia's Far East. The project, known as Sakhalin II, has already been substantially constructed (as of August 2007). It threatens the critically endangered Pacific Gray Whale, salmon fisheries, internationally-important wetlands and migratory bird habitats. Local communities have been adversely affected without having been consulted or provided with adequate compensation. The project breaches several international guidelines. For more background, see Sakhalin Environment Watch.
Shell applied in December 2003 and January 2004 to Britain's Export Credits Guarantees Department (ECGD) for financial support to develop the fields and to build an associated pipeline across Sakhalin Island. Phase 2 of the Sakhalin II project would enable oil and gas extraction to take place all year round. It includes building an offshore oil platform, an offshore gas platform, undersea pipelines, onshore oil and gas processing facilities, 800 kilometres of onshore pipelines, and one of the world's largest facilities for processing and exporting natural gas and oil.
The Corner House and other organisations urged ECGD not to provide such support because it would conflict with the UK's sustainable development commitments and with a range of international environmental obligations; it would require ECGD to derogate on its key environmental policies. ECGD would have very little prospect of making its support conditional upon improving the project or mitigating its impacts because construction work has been substantially completed.
The Corner House submitted several Freedom of Information Act requests. Under the Freedom of Information Act, The Corner House obtained a letter written by ECGD to the Bermuda-registered Sakhalin Energy Investment Company (SEIC) on 4 March 2004. The letter confirms that ECGD approved conditional financial support for $650 million of contracts for two British sub-contractors of SEIC (with interest, the amount of public money at risk amounts to $1 billion according to ECGD's figures). (Until December 2006, Royal Dutch Shell was the majority shareholder of SEIC, but has since sold most of its holdings in the company to the Russian state-owned Gazprom.)
On 15 August 2007, The Corner House and WWF-UK applied for a judicial review of this decision, arguing that the ECGD contravened its own policies. In the 4 March 2004 letter, which ECGD since acknowledged to be legally-binding, ECGD gave its conditional support for the project before assessing the environmental and social impacts arising from Sakhalin II. Yet its policies stipulate that support can be given only after such assessments have been made. (A judicial review is a court proceeding in which a judge reviews the lawfulness of a decision or action made by a public body.)
ECGD's policies also preclude legally-binding commitments being made at a preliminary stage in assessing whether or not to provide support. The judicial review application also argues that the 4 March 2004 letter indicates that the ECGD made a decision to support the Sakhalin II project, yet government ministers have continued to tell Parliament that no decision on ECGD support has been taken.
On 29 February 2008, one month before the judicial review was due to be heard in court, Sakhalin Energy withdrew its application for ECGD support, citing “delays in getting financing approval”, and specifically referring to the judicial review as one of the factors in the delays. A Dow Jones press report also suggested that the potential judicial review was why the company withdrew its application. As a result of the company's withdrawal, WWF and The Corner House decided not to proceed with their application for judicial review.
In 2009, the UK government changed the law governing ECGD [see Industry and Exports (Financial Support) Bill] so as to allow the agency to give financial support an exporter after the goods and/or services have been exported. The Bill also effectively weakened ECGD's human rights obligations.
In June 2008, the Japan Bank for International Cooperation (JBIC) agreed to finance the project with $3.7 billion while other commercial banks provided $1.6 billion.
See WWF's news coverage about Sakhalin II and its documents on the proposed judicial review.