Shell announces Sakhalin II project schedule and cost update
Posted: 18 July 2005
Shell previously indicated that the Sakhalin II Phase 2 project faces significant further cost and schedule challenges.
Sakhalin Energy Investment Company (SEIC) provisionally anticipates that Phase 2 project investment costs could be of the order of $20 billion, covering all planned development activity including drilling activity through to 2014, with LNG deliveries starting in the summer of 2008. The SEIC estimates are still work in progress and remain subject to shareholder review and confirmation. SEIC currently has over 75% of its LNG capacity sold under long term contracts and is in negotiation with buyers for the balance of production capacity. The recoverable resource base in Sakhalin II is 17.3 TCF of gas and 1 billion barrels of oil which at SEIC’s indicated revised estimates means a project development cost of some $5 to $6 per barrel of oil equivalent and includes the LNG plant.
The project is midway through construction and will provide critical oil and gas infrastructure to Sakhalin Island . Significant milestones have been achieved at the LNG plant, onshore processing facility and the installation of the first gravity based structure offshore. Pipeline construction continues to make good progress and the second gravity based structure is expected to be installed next month.
The cost and schedule estimates are still under review by SEIC and SEIC shareholders, who are focused on aggressively pursuing mitigation actions. SEIC will be working closely with Russian authorities and state experts to review revised plans and budgets.
Looking beyond Sakhalin II, Shell’s overall capital investment programme will reflect its recently announced new project opportunities such as Qatar LNG, Nigeria LNG and Libya , as well as market inflation specific to large construction projects and foreign exchange rate movements. The overall Shell investment programme, including these projects and Sakhalin II, will be subject to review, consideration and approval by its Board later in 2005. The latest estimate for Shell’s 2005 total capital investment, across all its business activities, remains in the order of some $15 billion (excluding the 45% minority share of Sakhalin II held by Mitsui Sakhalin Holdings BV (25%) and Diamond Gas Sakhalin BV - a subsidiary of Mitsubishi Corporation - (20%)).
Malcolm Brinded, Executive Director for Shell’s Exploration and Pr oduction business, commented, ‘We are taking immediate action to address these issues - and consulting and discussing with appropriate stakeholders to enable this critical and challenging frontier project to come to an acceptable completion. The Exploration and Pr oduction executive team, and the SEIC management, always recognised the massive challenges of this project. We are committed to deliver the project - and to deliver value to shareholders and to Russia ’.
Posted by Editor Pipeline Magazine
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