East Asian customers interested in Sakhalin LNG

Nov 07, 2001 01:00 AM

Yelena Zolotareva, head of the Sakhalin Energy consortium's office in Moscow, said that several potential customers in East Asia had indicated their willingness to buy LNG from a plant that will be built in southern Sakhalin. She stated that Sakhalin Energy, which was set up to develop the Sakhalin-II offshore fields, hoped to sign three final LNG supply contracts by June of next year. Once contracts are finalized, she said, the consortium can begin work on its LNG plant.
Zolotareva went on to say that Asian buyers were interested in fuel from Sakhalin because other traditional suppliers of LNG were so much further away. China, Japan, Korea and Taiwan are all closer to Sakhalin than to Indonesia, Malaysia, Oman or Qatar, she remarked. She also noted that the potential buyers needed seasonal supplies and would buy most of their LNG during the winter. This is advantageous for Sakhalin Energy, she said, since its plant will be built in a place where temperatures drop to about -30 degrees Celsius during the winter. Lower temperatures will ease the process of liquefying the gas, she explained.

Sakhalin Energy signed its contract for the Sakhalin-II concession in June of 1994. The concession includes the Lunskoye and Piltun-Ashtokhskoye fields, with reserves of about 1 bn barrels of crude oil and up to 400 bn cm of natural gas. The Piltun-Ashtokhskoye field came on line in July of 1999 and is now yielding about 35,000 bpd of oil; all output is being sold in Japan and South Korea. Sakhalin Energy is planning to begin work at Lunskoye soon and hopes to start extracting gas in 2006, after it finishes work on a floating drilling platform at a site 13 km from shore.
The consortium has said that development of the concession may require a total of $ 11 bn or more. Members of the group have already invested about $ 2 bn in the first stage of work at the offshore fields, Zolotareva said. Financing for this phase of project came partly from members of Sakhalin Energy and partly from international financial institutions -- namely, the European Bank for Reconstruction and Development (EBRD), the Japan Bank for International Cooperation (JBIC), the Overseas Private Investment Corp (OPIC) and the US Export-Import Bank.
According to Zolotareva, these financial institutions have provided about $ 348 mm for the project so far and may provide additional credits of $ 3-6 bn for second-stage work. The consortium has already begun discussions on further financing, she said. She stated, though, that financial institutions would probably not commit funds until Sakhalin Energy began finalizing LNG supply contracts.

The second phase of the project envisions the construction of the LNG plant at a cost that may reach $ 2 bn. This plant will be the largest facility of its kind in the world, capable of turning out 9.6 mm tpy of LNG. Three parties were invited in August to bid for the LNG plant contract: a group headed by Bouygues Offshore of France; a group including Technip of France and Foster Wheeler of the United States; and a group headed by Toyo and Chiyoda of Japan. The results of the tender will be announced in the second quarter of 2002, and work on the plant is due to be finished by 2006.
Sakhalin Energy will also build north-south oil and gas pipelines across Sakhalin Island at a cost of about $ 1.5 bn and build terminal facilities to allow for the export of crude oil and LNG to South Korea, Taiwan and Japan in the second phase of its project. The consortium has yet to arrange all of the financing necessary to cover the estimated $ 8.9 bn price tag for second-phase work, including the construction of the LNG plant. Nevertheless, the foundation stone for the facility was laid in Yuzhno-Sakhalinsk on July 17 in a ceremony attended by representatives of the consortium's three members -- Shell, Mitsui and Mitsubishi.

Shell is the main investor in the Sakhalin-II project. The multinational company raised its share in the Sakhalin Energy group to 55 % last fall after acquiring a 37.5 % holding from Marathon of the United States. The other members of the consortium are Mitsui and Mitsubishi of Japan, with stakes of 25 % and 20 %, respectively. McDermott, a US company, originally had a 20 % stake in the project but split its holdings among the other partners several years ago in order to seek service contracts for all Sakhalin projects.

Source: NewsBase
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