Shell comes under fire for role in Sakhalin audit

Nick Mathiason, The Observer 31 Aug 08;

Oil giant Royal Dutch Shell faces damaging claims over its influence on a supposedly independent environmental audit to determine whether the world's biggest oil and gas project would receive vital bank funding.

Dozens of emails released by the government under the Freedom of Information Act show how Shell officials in London attempted to downplay and edit international environmental criticism of the $22bn Sakhalin II energy scheme off the east coast of Russia, which has subsequently been all but fully financed.

The exchange reveals anxiety from an unidentified party, thought to be a UK government agency, at how Shell was 'stage managing' the review conducted by AEA Technology, the one-time Atomic Energy Authority, now an environmental consultancy.

The report, published last November, was used by banks to assess whether funding Sakhalin II was consistent with environmental and social protocols.

Sakhalin II will produce 1.6m tonnes of carbon dioxide - three times the UK's annual carbon footprint. It also threatens the long-term future of the endangered western gray whale as well as rare fish and other wildlife. Shell owns a 27.5 per cent stake in the Sakhalin Energy project, with Russia's Gazprom holding just over 50 per cent.

Email exchanges spanning three months and 40 pages show how officials at Shell sought to downplay the significance of a critical Russian environmental audit by persuading AEA to disperse its findings through the report, rather than leaving them in one potentially damning appendix. Questions from a leading environmental group over whether permits were sought before drilling work began were similarly downplayed, as were experts' concerns over the impacts of continuous noise on the critically endangered whale.

That Shell, headed by Jeroen van der Veer, seemingly was allowed by the authority to amend the finished report has called into question the independence of the process, claim environmental campaigners.

Doug Norlen, policy director of US-based Pacific Environment, said: 'The AEA report lists [Sakhalin Energy] as its client, even though it is meant to be independent. That's bad enough, but Shell stage-managed the whole process. They set the agenda, scheduled meetings and even participated in the editing of sections. I believe this to be a stark and vivid example of manipulation. In addition to skewing the review it destroys the pretence that banks have used ethical considerations before deciding whether to fund the project.'

A spokesman for Shell said: 'The opportunity for Sakhalin Energy and its shareholders to provide comments on a draft report of this kind is routine and designed to ensure accuracy. The findings contained in AEA Technology's report are entirely theirs.'

An AEA spokesman maintained the report was independent and while Shell and various banks made suggestions it was under no pressure to accept them. 'AEA maintained ownership of the report. In some cases it accepted suggestions and in others it rejected them. AEA stands by its final report in providing an accurate, balanced and independent view of the overall project.'

Among banks which have lent Sakhalin II money is Credit Suisse, which advised Gazprom and Shell on the project. It declined to comment.

However, the row has deeper significance. Shell is the oil major with the biggest interests in the Arctic. Earlier this year, it controversially spent more than $2bn acquiring drilling leases in Alaska's Chukchi Sea. It is also spending billions exploiting tar sands in Canada, a hugely energy-intensive process. Campaigners say Shell will use audits similar to that of Sakhalin to argue it is taking adequate steps to protect the environment.

The 90 billion barrels of oil expected to exist in the Arctic are more than all the known reserves of Nigeria, Kazakhstan and Mexico combined.

In recent years Shell has sought to soften its image after seeing its reputation trashed following the murder of Nigerian tribal leader Ken Saro-Wiwa, who was protesting at seeing his homeland damaged by Shell's oil extraction.

The firm moved into renewables and placed great store by corporate social responsibility messages. But in the last year, it has seemingly changed tack, ditching renewable energy projects and aggressively bidding for licences in the Arctic, gambling that the world's thirst for oil will outweigh other concerns.