Sakhalin close to striking LNG deal with Japanese buyers

Jan 31, 2003 01:00 AM

Sakhalin Energy, the Shell-led operator of the Sakhalin-2 production-sharing agreement, is close to striking a deal with Japanese buyers for its LNG, Shell CEO Steve McVeigh said. "We are confident that these negotiations will yield some agreements in the near future," McVeigh said.
The LNG deals are a key condition for the PSA to move into phase two. McVeigh said talks are being conducted with a number of Japanese companies, including Tokyo Gas. Sakhalin-2, located of the coast of Sakhalin island in the Far East, is the first and only PSA in Russia to begin pumping oil.
Its two fields contain some 1 bn barrels of oil, comparable to the total amount Russia exports annually, and 550 bn cm of natural gas, just over Gazprom's annual production volume. Shell Group holds a controlling 55 % stake, Mitsui holds 25 % and Mitsubishi holds 20 %.

Sakhalin Energy pumped 10.7 mm barrels in 2002. The company forecasts production will diminish somewhat this year to 9.7 mm barrels due to decreasing reservoir pressure. McVeigh said, however, that by December 2003 equipment to pressurize the reservoir should be in place and production levels should rebound.
Sakhalin-2 needs more than long-term customers for its gas. It also needs the State Duma to approve key changes to the country's tax laws that would legally enable the PSA to advance into its second phase.

The second phase envisages the construction of two more platforms: one at the Piltun Astoskhskoye oil field and the other at the Lunskoye gas field. Shore pipelines to Prigorodnoye on southern edge of Sakhalin are also to be built to transport hydrocarbons to a planned port and LNG plant.
Total investment for Sakhalin-2 is projected to reach $ 10 bn, most of it coming over next five years. During these five years, Sakhalin Energy is also to invest $ 5 mm in research aimed at protecting the endangered western Pacific grey whale.

Only about 100 western Pacific grey whales are left in existence and key seasonal feeding grounds are located just a few km from the Molikpaq oil platform, just off Sakhalin's northeast shore. Environmentalists became concerned about the fate of these grey whales after the PSA project got under way in Sakhalin about a decade ago.
Sakhalin Energy maintains that the whale population has not been adversely affected by oil exploration and development. McVeigh said the company has spent $ 2 mm on researching and monitoring the situation and plans to extend its research to better understand whales' southward migration for breeding. The company would welcome the participation of individual specialists and non-governmental organizations, McVeigh added.

Source: The Moscow Times
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