Mikkelsen A., Langhelle O. (eds.) Arctic Oil and Gas. Sustanability at Risk?

Map 10.3 Location of gas fields and pipelines in the Yamal-Nenets Autonomous Okrug.

Gas/condensate field

Oil/condensate field

Prospective structures

Existing pipelines

Pipelines under construction/ in

project

Rusanovskoye

Leningradskoye

Malyginskoye

Syadorskoye Tasiyskoye

N. Tambeyskoye

Shtormovoye

W. & S. Tambeyskoye

Utrenneye

Kharasaveyskoye

Kruzenshternovskoye

E. & N. Bovanenkovskoye

Bovanenkovskoye

Baydaratskoye

Verhnetiuteyskoye

Nerstinskoye

W. Svyakhinskoye

Neytinskoye

Arkticheskoye

Ust-Yuribeyskoye

Sredneyamalskoye

Nurminskoye

Khambateyskoye

N. Kamennoye

Yamburgskoye

Zapolyarnoye

Beregovoye

Urengoyskoye

Novoportovoye

Rostovtsevskoye

Kamennomysskoye

Medvezhye

The Russian model 267

Yamal’s only proved reserves of 11 gas and 15 gas-condensate fields ready

for development, exceed 10.4 billion m

of gas and 228 million tones conden-

sate. The licenses for extraction belong to NadymGazprom, a company 100 per

cent owned by Gazprom. In 2002, Gazprom teamed up with the government of

the Yamal-Nenets Autonomous Okrug District to draft a sweeping development

program for the oil and gas fields of Yamal and its offshore areas, which is now

being reviewed by the Russian government. Gazprom is currently priming the

Yamal fields for drilling. The company holds mining licenses for the largest

Yamal fields – Bovanenkovskoye, Kharasaveyskoye and Novoportovskoye – which

have ultimate reserves estimates of 5.8 trillion m

of natural gas and 100 million t

of condensate. Owing to very complex natural conditions, gas will cost much

more to extract in Yamal compared to existing gas fields. Solid government back-

ing will, therefore, be needed to tap into the Yamal reserves.

The experts noted that Gazprom is not in a hurry with realization of these

plans and continues to prepare different documents such as background for

investments, environmental assessment of the project and analysis of possible

transport for delivering gas to consumers.

Compensating for decreased produc-

tion volume, Gazprom decided to start the development of small field-satellites,

located close to existing infrastructure that had originally been built for field-giants

(see Figure 10.2): As for the fields off the Yamal Peninsula, Ob-Taz Bays, they are

considered as a major strategic asset for the gas industry.

Several options have been proposed in order to bring stability and prosperity to

the region.

The structure of the Oil and gas sector should most likely be changed

towards the emergence of small- and medium-sized enterprises operating roads,

terminals and transport infrastructure, as well as pipelines, oil separation units

and tank farms. This will hopefully facilitate investments in small oil and gas

projects, which in turn requires simplified licensing procedures and fast issuing

600

500

400

300

Gas production (billion m

)

200

100

YaNAO’ s budget (billion rubles)

Figure 10.2 Dynamics of receipts of the budget of the Yamal-Nenets Autonomous Okrug

(YaNAO) v. gas production dynamics.

268 E. N. Andreyeva and V. A. Kryukov

of various permission documents. At a larger scale, there is a certain need for

creating a market for delivering service products to the oil and gas industry

(drilling, geophysical, etc.).

As a whole, the oil and gas sector of the Russian economy needs diversification.

Some examples are already to be found in: the Gubkinsky petroleum refinery

producing non-polluting motor fuels; the Novourengoisky petrochemical

complex processing gas and condensate; the Gubkinsky and Muravlenkovsky

gas-processing plants processing associated petroleum gas and directly in the

fields of the Purovsky area with their output of liquefied gases and diesel fuel; as

well as the construction of two new gas-processing plants in the Tazovsky and

Purovsky areas.

In the opinion of Y. Neelov, Governor of Yamal-Nenets Okrug, the potential of

both the Yamal Peninsula and the Nadym-Pur-Tas area should dramatically

increase not only owing to modernization and commissioning of hydrocarbon

fields, but also owing to the creation of new sectors of economy, such as the

advancement of production of solid minerals and the creation of a mining industrial

region in the Polar Urals zone, petrochemical works and, in prospect, electric

power industry on the basis of low-pressure gas.

Experts have also called for establishing ‘inter-regional shift teams’ from the

cities of Nadym, Urengoi, Yamburg and Salekhard, which all are located close to

the new projects’ territories.

This will remove the problem of ‘superfluous’

population. The population of Novy Urengoi is 106,200; however, including those

working on a rotational basis and temporarily registered in the area, the total

number of the population of municipal unit approximates to 120,000. In recent

years, the rotational team method has been used for field development on a large

scale. At the same time, the main staff for the rotational teams is recruited outside

the Yamal-Nenets Autonomous Okrug. These teams usually consist not only of

qualified workers from other regions, but also less qualified staff. Such workers

are available in the cities of Nadym, Novy Urengoi and Labytnangi, which are

located much closer to the fields.

In the opinion of A. Kim, Deputy Governor of the Yamal-Nenets Autonomous

Okrug, the inter-regional rotational teams formed at ‘a long distance’ should

include two further components. ‘Medium-distance’ rotational teams for gas

fields should be formed of highly skilled experts living in the industrial cities of

the Ural and Siberia located further south. ‘Near-distance’ rotational teams should

be formed in the cities located nearby the developed fields, and include

manpower from the cities of Nadym, Novy Urengoi, etc. With such organization

of rotational teams, unemployment rate in the cities of the Yamal-Nenetz

Autonomous Okrug can be appreciably reduced.

Since the mid-1990s, a program of resettlement from the North has been

implemented. In the territory of Nadym-Pur-Tazovsky, resettlement was initially

carried out at JSC Gazprom’ expense, and later was paid for by the local and

federal government. For example, from Nadym and the Nadym area, approxi-

mately 8000 people (about 2500 families) were moved to other areas of the

country during 1994–2003. One in ten inhabitants left, but then many of them

The Russian model 269

came back. The main reasons for this were high wage levels and more stable social

conditions in the Yamal-Nenets Autonomous Okrug than in other regions of the

country.

Arctic oil and gas projects can certainly contribute much to the development of

all regions located in the immediate proximity – Murmansk, Arkhangelsk

regions, Nenets and Yamal-Nenets Autonomous Okrugs. However, turning these

major opportunities into reality requires not only excellent subsurface resources

management, but also needs to take into account the interests of the local

population. Only in this case it is reasonable to speak about a model of development

that is close to sustainable.

Being indigenous in the petroleum age

Starting in 1999, three federal laws dealing with the rights of indigenous peoples

have been adopted, namely ‘On guarantees of rights of indigenous numerically

small peoples of the Russian Federation’, ‘On general principles of organization

of communities of indigenous numerically small peoples of the North, Siberia

and the Far East of the Russian Federation’, and ‘On territories of traditional

nature use of indigenous numerically small peoples of the North, Siberia and the

Far East of the Russian Federation’. These laws guarantee the protection of the

primordial habitat and traditional lifestyle of indigenous numerically small

peoples (see Textbox 10.3), the right to organize communities with tax benefits

for traditional nature use, gratuitous use of land of traditional habitation and

economic activities, participation of indigenous numerically small peoples in

co-governance of natural resources on territories of their traditional habitation and

economic activities. However, the practical implementation of the RF government’s

Textbox 10.3 Indigenous peoples of the Russian North

Aboriginal peoples of the Russian North, Siberia and the Far East are repre-

sented by 28 minorities, of which around ten minorities belong to the

Arctic group. The biggest groups are Sámi, Nenets, Enets, Nganasans,

Evenks, Evens, Dolgans, Chukchee and Eskimo. The majority live in small

villages close to their subsistence areas, where they pursue traditional

occupations like reindeer herding, hunting and fishing. But the reality

these people face today is anything but an idyllic carryover from the past.

Since the colonization of the North, large expanses have gradually been

converted into areas for alien settlement, transportation routes, industry,

forestry, mining and oil production, and have been devastated by pollution,

irresponsibly managed oil and mineral prospecting and military activity.

In tandem with the environmental disaster went the social decay of the

indigenous societies since the early Soviet era, with collectivization of

subsistence activities, forced relocations, spiritual oppression and destruction

of traditional social patterns and values. The result was the well-known

270 E. N. Andreyeva and V. A. Kryukov

minority syndrome marked by loss of ethnic identity, but minorities were

involved in work at collective farms, received free medical care and educa-

tion for their children. Their traditional economic activity was donated from

federal budget considerably and it became the radical contrast with current

situation.

The recent socio-economic crises of Russia, which came along with the

transition to a market economy, have led to a breakdown of most of the

supply and transportation systems in the remote areas of the North. Having

been incorporated into the alien Soviet economic system, made dependent

on modern infrastructure and product distribution, the people now find them-

selves left alone without supplies, medical care, rising mortality and the

economic means and sufficient legal expertise to deal with the situation. The

desperate road back to the old ways of life has tempted many, but is often

hampered by the degradation or destruction of the natural environment.

Reindeer herding is the fundamental, subsistence-related occupation

of many Northern peoples. It is not necessarily the most typical native

occupation, but the most characteristic one that still has economic significance.

Furthermore, it is not just an economic occupation, but has developed into

a way of life closely connected with ethnic identity. There are large-scale,

extensive herding cultures like those of the Nenets, Chukchee and Koryaks,

and small-scale breeding mainly for draught and riding animals as a

subsidiary occupation for many taiga people. Reindeer herding, however, is

very sensitive to environmental changes. Modern development has created

a severe threat to reindeer herding and its related cultures.

Environment, health, legal issues and the economy are today on the

agenda of the indigenous associations. Russian Association of Indigenous

Peoples of the North (RAIPON) and associated organizations are working

hard towards the Russian authorities concerning the emplacement of a

satisfactory legal basis for indigenous rights. So-called ethnic communities

are formed, where the native population executes a sort of self-determination

in terms of traditional subsistence. Environmental violations have been

brought to trial. Health-related development projects are being initiated.

Native communities are trying to go back to their traditional social clan

structure and to revive the old ways of life in order to survive the present

socio-economic crisis.

Source: Dallman, V. K. (2001) Indigenous People of the Russian North, Tromsø: ANSPIRA/

Norwegian Polar Institute.

policy prevailing since 2001 has clearly shown that the RF government has failed

to execute these federal laws adopted in 1999–2001 (Bogoyavlenskiy and

Murashko, 2004).

According to the information collected by regional associations of the Russian

Association of Indigenous Peoples of the North (RAIPON), 246 communities

The Russian model 271

have been legally registered during the past three years of the established federal

law, although there are more than 700 villages with concentrated indigenous

populations in Russia. In some administrative units of the RF, there is not a single

registered community, while in others there are several, although their majority

still remains unregistered according to the existing legislation. It has not yet been

determined which state body should be responsible for the registration of commu-

nities or the issuing of law-making standards with regard to their concessionary

taxation. The consequent legal instruments concerning communities are inten-

tionally intricate. Hence, in some regions it is assumed that communities should

be registered in state legal bodies, while in others it is believed to be a matter for

the tax inspectorates. In some regions, communities are exempt from taxation and

free from charges, while other communities are facing exorbitant claims in

connection with taxes, and communities are forced to go into liquidation.

During the first three years since the federal law on Territories of Traditional

Nature Use (TTNU; adopted in May 2001) went into effect, not a single TTNU

under federal administration had been formed, while the majority of land incor-

porating TTNUs is land of federal subordination. All the applications to establish

TTNUs have been met with the RF government’s refusal, first of all because the

criteria for delimitation of TTNU were not precisely described in the Federal Law.

In some regions, long before this law, regional governments formed TTNUs under

regional administration. For example, in the 1990s there were about 500 in the

Khanty-Mansi Autonomous Okrug. Traditionally they are still called ‘lineage-

based kinship areas’ covering about 26 per cent of the Okrug’s territory, but more

than 40 per cent of these lineage-based kinship areas have already been leased to

oil companies on long-term contracts. In Nenets Okrug, large-scale reindeer

breeding units were formed on the basis of defunct sovkhozes (Soviet state-

operated farms), whose grazing areas covered about 60 per cent of the Okrug’s

territory. According to Bogoyavlenskiy and Murashko (2004), these TTNUs are

threatened by a gradual leasing handover to oil companies. The RF government

has already sold licenses for oil and gas production in sectors included in the

TTNUs. The RF government holds that the establishment of regional TTNUs is

illegal before the adoption of the law and without clear criteria for that. The tax

assessment authority demands TTNU rental payment from communities. On one

hand, it is legally fair in accordance with the new RF Land Code, but on the other,

it contradicts the federal law ‘On payment for land’, in accordance with which

Northern indigenous peoples are relieved from payment for land. The intentional

confusion in the laws creates uncertainty among indigenous peoples about their

future, and leads to closing down of their communities.

The ecological environment of indigenous peoples’ habitation is systematically

disturbed. Offshore oil production operations have already adversely affected the

environment in traditional settlement areas of indigenous peoples, the quality of

marine bioresources known to be the indigenous peoples’ main food. RAIPON

has repeatedly approached the RF government with letters about the unaccept-

ability of worsening the ecological situation in the seas of the Far East. RAIPON

has become one of the claimants mounting a lawsuit against the RF government

272 E. N. Andreyeva and V. A. Kryukov

defending the habitat of grey whales in the Sea of Okhotsk. At present, RAIPON

is receiving information concerning the full-scale realization of the state program

of offshore oil and gas production in the Far East – a program which has not been

submitted to public evaluation until now – as well as the pipeline construction

project from Sakhalin all across the Khabarovskiy and Primorskiy territories and

over the border, and about oil and gas production projects and oil pipeline

construction in Chukotka and Buryatia. These projects will have and already have

an inevitable impact on the territories of traditional habitation and economic

activities of several indigenous numerically small peoples of the Far East.

Nonetheless, these projects have not been discussed with indigenous representatives,

and the opinion of the local population and indigenous inhabitants has not been

taken into account during the projects’ realization.

In March 2003, a letter came from the president of the Sakhalin Association of

Indigenous Peoples concerning the beginning of prospecting operations in Piltunskiy

Bay, which is an area where traditional fishing takes place. RAIPON reacted to this

letter by sending an inquiry to the Ministry of Natural Resources (MNR). It has

become known from MNR’s answer that the oil company, a branch of Exxon, carried

out prospecting operations not only without coming to any agreement with the local

indigenous peoples, but even prior to obtaining a positive conclusion from an envi-

ronmental expert evaluation. Nonetheless, MNR justifies the company’s actions and

informs RAIPON that prospecting has been carried out without any infringements.

RAIPON has repeatedly called the attention of the RF president, RF government and

the RF Federal Assembly to these violations, and suggested ways to solve the prob-

lems by setting up a federal body focused on indigenous peoples and adopting neces-

sary changes in and supplements to the existing legislation.

All the proposals made

by RAIPON, despite the favorable disposition of the RF president and RF Federal

Assembly, have been blocked by the RF government as economically inexpedient.

Oil and the worsening economic state of indigenous peoples

of the Arctic

Small- and medium-sized regional oil and gas companies were created in order to

provide social and economic support to the native peoples of the region. Hence,

native peoples of the North received a part of the shareholdings of privatized oil

and gas companies located in the territory of their habitation. Approximately

5 per cent of shares of all the oil and gas enterprises (at initial privatization) were

allotted for these purposes. Several petroleum companies (like Evikhon and

YugraNeft) received the status of:

regional development companies … in the interests of minority peoples of

Khanty and Mansi. Formally, several investment and unit funds were

supposed to focus on maintenance of long-term economic interests of native

minorities, e.g. The Investment company of social protection and development

of minority peoples of the North.

However, previous experience with similar structures has been far from successful.

The Russian model 273

In 1992, the Decree of the Russian Federation Government

stated that it is

necessary:

to agree upon foundation of the joint-stock petroleum company Evikhon as the

regional development company ... for geological survey, development and

production of oil in the Upper and West Salym fields in the interests of the

native minorities Khanty and Mansi, living in the territory of these fields.

Sadly, the further activity of this company was connected only to a very small

degree to the interests of the native minorities. In 1995, the joint-stock company

Evikhon imported duty-free cigarettes from abroad for US$112,262 thousand

which accounted for 31 per cent of the market share for imported cigarettes in

Russia at the time. These sales in no way contributed to solving the problems of

the native minorities of the North.

Further ‘traces of presence’ of any native minorities in the property of the

company Evikhon were finally lost. In 1993, the Shell company, or its affiliated

structure Shell Salym Development (SSD), won the rights to the subsurface

resources of the Salym fields. In 1996, Evikhon and SSD created conditions of

equal shareholding in the joint venture Salym Petroleum Development (SPD),

which was supposed to begin development of the Salym fields. In 1998, the license

on the Salym field was transferred from Evikhon to SPD. At the end of 1998, the

English company Siberia–Energy (SE) purchased 20 per cent of Evikhon’s share in

SPD (the bargain was carried out on behalf of private investors, and at roughly

US$30 million) and, at the end of 1999, an additional 55 per cent. As a result, the

share of SE at the end of 1999 already accounted for about 82 per cent in Evikhon,

and 78 per cent in Yugraneft. Hence, at the beginning of 2007, the key owners of

SPD are Shell and Gazpromneft companies. Shareholdings in the oil and gas

companies transferred to various investment and voucher funds ‘in the interests of

the native minorities’ are no less confusing. Therefore, it is apparent that the inter-

ests of the minorities have not been safeguarded. Not only were the forms of public

control absent, but also those of the state.

Development of hydrocarbons production has sharply aggravated the already

existing problems connected to the traditional subsistence of the native minorities.

In the territory of the Purovsky area, there are 4000 representatives of different

native minorities. Basically all the economically active population is engaged in

traditional occupations, and is incorporated into agricultural cooperatives and

national communities. All the national communities are concentrated in the south

of the Purovsky area, which is the area of intensive oil development. In the opinion

of Vladimir Marbik, the Vice-President of the Committee of Native Minorities of

the Purovsky area:

expansion of activity of the oil-and-gas companies leads to dramatic reduction

of reindeer breeding. Traditionally, the nomadic population of the region lived

an isolated life. After introducing oil-and-gas projects to the region, the terri-

tories of traditional economic activities are surrounded with communication

274 E. N. Andreyeva and V. A. Kryukov

networks, oil-gas-condensate pipelines, motorways, pumping units and drilling

rigs. This dramatically reduces the native peoples’ opportunities to roam freely

and pursue the traditional nomadic way of living.

Combining oil and traditional subsistence in Yamal

The first attempt to develop the giant Yamal oil fields – Bovanenkovo-Kharasavey

in 1988–1989 – was considered unsuccessful owing to the environmental and

social problems in the region. The technical feasibility report of 1989 found

numerous deficiencies, and the project was closed for a while, but a comprehen-

sive program of research was initiated in several directions. The program was

headed by Gazprom in cooperation with a large number of scientific research

institutes. The perestroika period of the 1990s brought about changes in the finan-

cial and managerial structure of the development, and the operational opening of

Yamal was eventually postponed.

In the 1960s and 1970s, environmental control over industrial activity was very

poor, as elsewhere in the world. Only in the late 1980s, the negative environmental

impact the oil and gas industry has on ecosystems as well as the local population’s

health came to the attention of the Russian public. The 25 years of gas develop-

ment in the Yamal-Nenets Autonomous Okrug has had a large effect on the local

population, its habitats, natural resources and the environment. Owing to the lack

of legislation and control over the Northern territories, the industrial enterprises

occupied 10-30 times more land than would have been permitted according to

existing standards. Pasture lands have been destroyed by fire and heavy vehicle

traffic. As a result, more than 1 million hectares of pasture has been removed

from the population in the rural areas. Several rivers and lakes were spoiled,

which has affected the balance of the natural water systems of the region.

However, these negative impacts were eclipsed by the great success of the gas

industry development, the appearance of new urban settlements and a fast-growing

population.

The Nenets people of Yamal are not only the most numerous of all the peoples

of the Russian Arctic, but are also considered both politically and socially aware

of the significant role the indigenous peoples of the Russian North represent in

the oil and gas development. Indigenous peoples (33,500) represent 19 per cent

of the total population of the okrug (172,600), but the three sub-regions impacted

by industrial activity – Tazovsky, Nadymsky and Yamalsky – do not have an equal

distribution of these people. Most (more than 10,000) live in the Yamalsky

sub-region, 6683 live in Tazovsky and 2048 in Nadymsky.

The initial stages of the oil and gas development in the 1970s and 1980s took

place mainly in the Nadym sub-region, where the indigenous population was low.

The first phase of industrial operations resulted in severe miscalculations regarding

the vulnerable ecosystems of the Polar zone. However, since these activities

affected only small numbers of indigenous peoples, the degradation of pastures

that took place in the sub-region did not have the crucial negative impact that it

is now expected in the Yamalsky and Tazovsky sub-regions.

Reindeer breeding is the main traditional subsistence activity of the Nenets

people, and the people of the region found a way to save and even increase the

number of herds during the economic crises of the reformation period. Unlike

some other regions, the local authorities of Yamal-Nenets Okrug supported the

indigenous peoples and let them increase the number of private reindeer herds while

simultaneously staying in collective farms. The state unions rendered assistance to

the reindeer breeders who wanted to keep their large herds and to process the

products of reindeer breeding. Today, Yamal has the largest herd in the Russian

North, with around 600,000 animals, almost two-thirds of which are privately

owned. Several other regions of the Russian Arctic, where reindeer breeding was an

important part of the indigenous peoples’ economy, have lost considerable numbers

of reindeer, sometimes to a catastrophic level. This applies to the Chukotsky Okrug,

where reindeer herds were reduced to a fifth of their original size. The Yamal-Nenets

Okrug continues to increase the size of its herds even though the Yamal pastures

are overexploited. Today, the Yamal and Tazov sub-regions already have 70 per cent

of the reindeer herds while possessing only 31 per cent of the pasture resources.

Currently, this problem is very tense in the Yamal sub-region, where the actual

number of animals exceeds the intended capacity of the pastures by 87 per cent.

The Nenets people even have to sell reindeer to the neighboring Khanty-Mansi,

Nenets and Evenk Okrugs, but the problem of pasture resources is still very acute.

Hence, the local people consider the forthcoming expansion of the gas companies

on the Yamal Peninsula as a serious threat to their lifestyle. It will almost certainly

result in withdrawal of land for industrial construction, drilling pipelines and

contamination of rivers and lakes.

However, despite the threat to their present living standards, most people do not

wish to leave their native places of residence. Even whilst having large pastures

available, the Nenets refuse to change the ways of reindeer migration and habitats.

Each family or tribe have ethnic ties to specific areas. If the move is forced, the

results can be devastating. Surgut district, which is located in the Khanty–Mansi

Autonomous Okrug, the main oil-producing area of Russia, can serve as an example.

Several families lost their habitats when most of their tribal lands were taken over

by the industrial development. In exchange, the aboriginals were moved to a

settlement specially designed for their needs. Without any opportunity to carry

out their traditional lifestyle and living on welfare, people simply lost interest in

life. The suicide rate and level of alcohol abuse soared. The Governor of the

Okrug at the special meeting of the local authorities and scientists in June (2001)

had to recognize publicly that this experience was not socially sustainable.

The Russian ethnographer, K. B. Klokov (2001),

while analyzing the complex

and difficult situation of recent changes in the indigenous communities, comes to

a rather specific conclusion. The dominating society perceives reindeer breeding

of the Arctic peoples as somewhat foreign to the economy. Thus, it tends to assim-

ilate reindeer breeding into the farming pattern, which for the dominating society

is considered a customary, reasonable and effective means of economic activity. As

a whole, during the last decades, the subsistence of the Northern peoples has been

under a rigid control of the dominating society. Prior to the reformation period,

The Russian model 275

Mikkelsen A., Langhelle O. (eds.) Arctic Oil and Gas. Sustanability at Risk?

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