Sakhalin
Energy signs LNG deal with Tokyo Electric
Posted: 21 May 2003
The multi-billion dollar Sakhalin 2 Phase II Project achieved a
major marketing success today with the signing of a substantial liquefied natural gas (LNG)
supply agreement between Sakhalin Energy and Tokyo Electric Power
Company. The deal calls for the supply of 1.2 million tonnes per
year
for a period of some 22 years.
The sales deal with Tokyo Electric - the largest power company
in Japan
- confirms Sakhalin Energy as a major new supplier of LNG to the
Japanese market. This is the largest LNG sales deal Sakhalin Energy
has
signed, and brings volumes of natural gas sold from the Sakhalin
2
Project to more than 2.3 million tonnes per annum for periods in
excess
of 20 years.
This key LNG sales agreement reinforces Sakhalin Island as the
new
strategic source of natural gas for Japan, and confirms the wider
Asia
Pacific Region as a major new market for Russian gas supplies. It
also
represents the beginning of Russia and Sakhalin Energy as major
new
players in the worldwide LNG market.
Steve McVeigh, Chief Executive Officer of Sakhalin Energy, and
Mr.
Susumu Shirakawa, Managing Director of Tokyo Electric, signed a
Heads of
Agreement
(HoA) on 19 May for the long-term supply of LNG, and first deliveries
are expected to start in 2007. The two companies will now continue
negotiations to enable a full sale and purchase agreement (SPA)
to be
signed by April 2004.
The agreement with Tokyo Electric agreement comes just a few days
after
the Company's shareholders - Shell, Mitsui and Mitsubishi - confirmed
a
positive investment decision to proceed with the development of
the
Sakhalin 2 Phase II integrated oil and gas project. This led last
week
to Sakhalin Energy announcing a formal Declaration of Development
Date
for the Lunskoye gas and condensate field, which launches the Sakhalin
2
Phase II Project. Gas from the Lunskoye field will be the main feedstock
supply of natural gas for the LNG plant.
"Russia has been a reliable and successful supplier of gas
to Western
Europe for decades. Sakhalin Island and the Sakhalin 2 project have
now
become the springboard for Russia to repeat that success in the
Asia
Pacific Region with gas from the Russian Far East," said Sakhalin
Energy
Chief Executive Officer Steve McVeigh.
"We are extremely pleased that Tokyo Electric has become one
of our
foundation customers, and Sakhalin Energy's largest LNG customer
to
date. It is particularly pleasing that this news comes just a few
days
after we announced a Declaration of Development Date for the Phase
II
project. Tokyo Electric is playing a key role as one of the leaders
in
opening up a new strategic far eastern gas supply source. We shall
be
working closely with them to build a long term relationship between
us,
and ensure that Sakhalin takes it place as one of the world's leading
sources of reliable LNG supplies," added Steve McVeigh.
The LNG market is fiercely competitive at the moment. There are
many
other suppliers competing for business, coupled with uncertainties
over
deregulation and slow economic growth in the region. The Tokyo Electric
agreement represents another major success for Russia and Sakhalin
Energy in the LNG business in this tough market.
Steve McVeigh added: "This major new LNG sales deal proves
that Sakhalin
Energy and its shareholders were right in their decision to opt
for LNG
as the best choice for natural gas export from Sakhalin. All the
major
gas customers in Japan and other countries in the Asia Pacific already
have LNG receiving facilities. The fact that we sit on the doorstep
of
these existing LNG buyers makes Sakhalin and the Sakhalin 2 LNG
project
the logical choice for these markets.
"The agreement with Tokyo Electric means that we have now
pre-sold a
significant proportion of the plant's first liquefaction train under
long term supply agreements, and further announcements are to be
expected in the near future as negotiations mature on the remaining
volumes of the first train. That is a major achievement for a new
greenfield LNG project in today's tough market."
LNG will be supplied from Sakhalin Energy's major new LNG plant,
which is planned for construction at Aniva Bay on the southern tip
of Sakhalin. Front-end engineering design work on the plant has
been completed, and full construction activities on the plant are
expected to commence in the next two months subject to final approvals
from the Russian Government.
The LNG plant is a major part of the Sakhalin 2 Phase II project.
It is the first LNG plant to be built in Russia and will have a
total capacity of 9.6 million tonnes per annum (mtpa).
The plant will have two gas liquefaction process trains, each with
a capacity of 4.8 mtpa - currently the largest LNG trains planned
in the world.
The oil and gas resources located offshore of Sakhalin are world-class
in size and quality, and in the future there is a possibility for
the
Sakhalin 2 facilities to be expanded to accommodate additional
hydrocarbon export capacity from other projects, thereby becoming
a
"Corridor to the marketplace".
Dr Galina Pavlova, Head of the Oil and Gas Complex commented: "This
sales deal confirms our decision to push forward with the Sakhalin
2 LNG
project as the fastest way to get Sakhalin natural gas to the market
place. We are pleased that a major Japanese energy company like
Tokyo
Electric has become one of the launch customers for energy supplies
from
Sakhalin, and is helping to establish the Russian Far East as the
new
strategic supplier of natural gas to Japan and rest of the Asia
Pacific
Region.
"Just a few days ago the shareholders of Sakhalin Energy confirmed
their
decision to invest in the Phase II project, and the Company announced
a
Declaration of Development Date. We believe other potential customers
both in Japan and the Asia Pacific also recognise the importance
of
Sakhalin as a close, competitive and flexible supplier of gas for
the
future, and we expect Sakhalin Energy will be announcing further
LNG
sales deals in the near future."
Posted by Richard Price,
Editor Pipeline Magazine
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