Japan weighing between LNG or pipeline from Sakhalin

Apr 24, 1998 02:00 AM

The National Pipeline Research Society, comprising 44 Japanese private companies, in early 1997 produced a report based on a 10-year-long preliminary feasibility study on a Japanese natural gas grid.
It estimates an Import Trunkline of 2,400 km to extend along the Japan Sea coast from the undersea Sakhalin pipeline would cost Y 1.3 trillion, while a 2,500 km Pacific Coastal Marketing Trunkline would cost Y 2.2 trillion.
"The current costs for construction of those lines can be assumed to be 60 % of the preliminary estimates made in early 1997 as material prices have since fallen significantly," the Research Society's Asakura says.
Japanese utilities currently have 21 LNG storage and distribution terminals and facilities, each of which involved at least Y 1.0 trillion in investment, experts say.
But, "the costs of laying an import gas pipeline could shortly match those needed to build a new LNG terminal," argues Sodeco's Arioka.
JNOC's Ikeda says that such pipeline projects should be partly financed by guaranteed government loans but mainly driven by the private sector.
'We believe the Japanese private sector will be able to break precedent by including aggressive foreign participation in up to one-third of the required investment,' Asakura says.
While the Sakhalin-1 partners have been weighing options for a pipeline, Sakhalin Energy Investment Co., the consortium behind Sakhalin-2, currently favours LNG-based delivery, says Kazumasa Miyazawa, Sakhalin-team sub manager at Mitsui & Co., a Sakhalin-2 partner.

Sakhalin Energy Investment is a wholly private concern, 37.5 %-owned by Marathon Sakhalin Ltd., 25 %-owned by Shell Sakhalin Holdings B.V., 25 %-owned by Mitsui Sakhalin Development Co. Ltd., and 12.5 %-owned by Mitsubishi Corp.'s subsidiary Diamond Gas Sakhalin B.V..

The Sakhalin-2 project calls for a phased approach in developing the Piltun-Astokhskoye field, which is set to start production of crude oil in July 1999. "We aim to begin gas production around 2004-05, but the timing would rely on finding LNG customers who can commit to a 25-year contract," says Miyazawa.
LNG isn't the final decision for Sakhalin-2, Miyazawa says. "And we aren't necessarily targeting only Japan", he adds.

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