A High Price for Oil and Gas

Göttingen/Genf
Introduction

Russia is the world’s biggest oil and natural gas producer. With a delivery volume of almost 500 million tonnes in the first half of 2005 alone, (Russian Information Agency, RIA, 30 June 2005) it is the leading oil producer. Between 200 and 230 million tonnes of this are exported, soon this figure will rise to up to 270 million tonnes (RIA, 9 July 2005). Similarly, Russia intends to increase gas exports.

30% (35 million tonnes) of Germany’s oil imports come from Russia, as well as 40% (approximately 35 billion m³) of its imported natural gas (German-Russian relations with a European context; discussion paper; Russia/CIS research group, foundation for science and politics, German institute for international politics and security; 3 May 2005, p. 7/8).These figures clearly demonstrate the mutual dependency of both countries: one on the supply of energy and the other on procurement of foreign exchange.

However, while oil and gas imports from Russia ensure security and stability of prices on the German energy market, the areas where oil is produced are suffering from an ecological and humanitarian catastrophe. The reserves of these raw materials in the Russian Federation are located almost exclusively on the land of the indigenous peoples of Siberia. Wood logging, coal, diamond, gold and uranium mining predominantly take place where indigenous peoples have their reindeer pastures, fishing grounds, forests and hunting grounds. The focal points for oil and natural gas production are West Siberia and the island of Sakhalin in Eastern Russia. At the Hanover trade fair in April 2005, the BASF subsidiary Wintershall signed a comprehensive cooperation agreement with the Russian state-owned company Gazprom, regarding the enormous, untapped Yuzhno Russkoe oil field in the West Siberian plain.

Siberia’s indigenous peoples are losing their livelihoods

Those who suffer most from the oil and gas export boom are the 240,000 members of the indigenous community who live in Siberia, as oil and gas are produced without taking into consideration their traditional way of life, which is dependent on an intact environment. Before the indigenous land rights have been clarified, licenses for oil and gas production are granted for areas, which indigenous peoples claim as theirs. In effect, their land is seized. The consequences are devastating: in West Siberia, 28 large and small rivers and lakes were biologically dead as early as 1989. Ailing pipelines and reckless production methods, which disregard environmental protection, have contaminated other rivers and lakes with oil so badly that the fish has become inedible. Reindeer pastures have been contaminated through oil spills, which poisons the animals. Between 8% and 10% of Russian oil is lost due to leaks in ailing pipelines.

Unemployment is high among indigenous peoples, who have hardly any other chance of an alternative source of income to hunting, fishing or reindeer breeding. Alcohol abuse can be seen as an indicator of increasing resignation and the suicide rate is also extremely high. The average life expectancy among indigenous peoples is 10 years lower than that of the rest of the russian population and up to 20 years lower than that of indigenous peoples in Europe and the US. The birth rate dropped dramatically by 90% between 1993 and 2003. (The Right to Adequate Food, (Art. 11) and Violations of this Right in the Russian Federation; infoe, 2003).

Germany’s share of the oil and gas market

Natural gas is becoming more important in this respect. At the centre of the German-Russian business summit in Moscow, which Federal Chancellor Gerhard Schroeder travelled to on 8 July 2004, was the successful completion of negotiations between German and Russian oil companies. Schroeder was accompanied by managers of the following companies: Eon/Ruhrgas, Wintershall, Siemens, Commerzbank, Deutsch Bank, Lufthansa, Daimler-Chrysler, Metro, Alfred Ritter, Hochland and Knauf. The summit was part of political efforts aimed at improving the economic relations between Germany and Russia.

The German company Eon, which has a share of 6.5% in the largest Russian gas company Gazprom through its Essen-based subsidiary Ruhrgas, and imports 31% of its gas from Russia, signed an agreement worth billions on extending joint energy production. Ruhrgas AG also expanded their business with Russian raw materials. The agreements between Ruhrgas AG and Gazprom run until 2020. Both companies are tapping new gas deposits predominantly in the West Siberian Plain. The production of natural gas is organised by three regional associations, the three most important are located on the territory of the autonomous Yamalo-Nenets region and the neighbouring Khantia-Mansia destrict. Eon, which explicitly expresses its commitment to environmental protection and efficiency on its homepage, is working directly on the land of ethnic minorities.

During the Hanover trade fair in April 2005, the BASF subsidiary Wintershall clinched a deal with Gazprom on gas production in the Yuzhno Russkoe gas field in West Siberia. For the first time, a German company is involved in gas production on a Russian gas field. The project includes a pipeline, which will lead from St. Petersburg through the Baltic Sea to the German Baltic coast. Production is due to begin in 2008 and to reach its full capacity of 25 billion m³ per year in 2010. Gas deposits are estimated at 700 billion m³, Germany’s total consumption for five years.

The deal consisted of an increase in Gazprom’s share of the jointly founded German distribution subsidiary, Wingas from 35 to 50%. In return, Wintershall was given a 50% share in the Yuzhno Russkoe gas field and a 49% share in the pipeline. In doing so, Wintershall has outflanked both Eon and its subsidiary Ruhrgas in the gas production business with Russia (information from "Frankfurter Allgemeine Zeitung”, 12 April 2005).

Siberian energy exports feed growing markets in Asia

The demand for oil and natural gas is growing steadily in Asia as well. Russia has a clear advantage due to its geographic position; it can supply both Europe and Asia using the deposits in West Siberia and Sakhalin. Off the coast of the island of Sakhalin lie the largest untapped oil and gas deposits in the world. A total of 6 oil and gas fields will be developed there. Exxon-Mobil and the Japanese company Sadeco both have a 30% share in the Sakhalin 1 Block project; Russia’s Gazprom (formerly Rosneft) and the Indian company India’s Oil & Natural Gas Corp each have a 20% share. Natural gas will be exported from here to among others, Korea and Japan.

Royal Dutch/Shell is the biggest shareholder (55%) of Sakhalin 2. Together with the Japanese companies Mitsubishi (20%) and Mitsui (25%), Shell formed the "Sakhalin Energy Investment Company” (SEIC) in 1998. This consortium signed a Production Sharing Agreement with the Russian government. Shell was given a disproportionally high share of the profit. The project is being financed by the US Overseas Private Investment Corporation (OPIC), the European Bank for Reconstruction and Development (EBRD) and the Japanese Bank for International Cooperation (JBIC). However, the EBRD froze its Shell Sakhalin loan in June 2005, due to concerns regarding the protection of the environment. (The Observer, 19 June 2005).

This part of the project has been the reason for protests by indigenous peoples settled in the area. In January and June 2005 they blocked roads to demonstrate against the destruction of their livelihood and voice their demands for an independent environmental investigation, a fund for developing alternative sources of income, as well as an independent working group to monitor the implementation of these demands.

Demands:

• The Society for Threatened Peoples (SftP) urgently calls on the UN special rapporteur for indigenous peoples, Rodolfo Stavenhagen, to examine the impact of oil and gas production on the land rights, way of life, health, social structure and cultural survival of the indigenous peoples of the North and East of Russia and Siberia.

• The SftP requests that the United Nations Human Rights Sub-Commission on the Protection and Promotion call on the states who are involved in oil and gas production in Russia to respect the fundamental human rights of the indigenous peoples and to observe the elementary environmental protection standards, which are already in place in western industrialised states.

• The SftP further requests that the United Nations Human Rights Sub-Commission call on the Russian government to fulfill its obligations in international human rights, by passing the appropriate implementation regulations, so that the ratified treaties can enter into force.