Sakhalin Energy third LNG supply deal with Kyushu Electric
Posted: 24 July 2003
The multi-billion dollar Sakhalin II Phase 2 Project achieved another
major marketing success today with the signing of a substantial
liquefied natural gas (LNG) supply agreement between Sakhalin Energy
Investment Company Ltd and Kyushu Electric Power Company, Incorporated.
The deal calls for the supply of up to 0.5 million tonnes per year
for a period of some 21 years.
The sales deal with Kyushu Electric is the third successful deal
signed with a major utility company in Japan, which reinforces Sakhalin
Energy's firm position as a major new supplier of LNG to the Japanese
market.
Since the Company's formal Declaration of Development Date for
the Lunskoye gas and condensate field this May 2003 — which
launched the Phase 2 development of the Sakhalin II Project —
the momentum of the project has also been accelerating on the marketing
front.
This deal brings volumes of natural gas sold from the Sakhalin
II Project to more than 2.8 million tonnes per annum for periods
in excess of 20 years.
This LNG sales agreement further 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, signed the Heads of Agreement
(HoA) on behalf of Sakhalin Energy, and President Shingo Matsuo,
for Kyushu Electric.
The long-term supply of LNG will begin with first deliveries expected
in 2010.
The two companies will now continue negotiations to enable a full
sale and purchase agreement (SPA).
“This latest deal with Kyushu Electric from the southern
main region of Japan represents a growing chain of commitments from
Japan. It is a tribute to both the Sakhalin II project and the Russian
Far East that customers are confident and are keen to tap the abundant
gas supplies from Sakhalin, which represents the closest possible
available supply source to Japan,” said Sakhalin Energy Chief
Executive Officer Steve McVeigh.
“We are extremely pleased that Kyushu Electric has become
one of our foundation customers, and a leader in opening up this
new strategic far eastern gas supply source. With our strength in
terms of capacity and proximity, we shall work in cooperation with
Kyushu Electric to establish a strong relationship between us and
become their preferred supplier,” 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.
However, the Kyushu Electric agreement again indicates that a strategic
and competitive supply source will bring success for Russia and
Sakhalin Energy in the LNG business despite these tough conditions.
Steve McVeigh added, “This agreement with Kyushu Electric
keeps our successful momentum in the marketing effort moving forward,
and means that we have now pre-sold a significant part of the first
train. We will continue the effort and expect further announcements
of success in the near future as negotiations progress and mature
over the remaining volumes from the plant. Sakhalin Energy believes
that its strategic and competitive positioning will overcome challenges
posed by today’s tough market.”
LNG will be supplied from Sakhalin Energy's major new LNG plant,
which is planned for construction at Prigorodnoye 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
shortly following final approvals from the Russian Government.
The LNG plant is a major part of the Sakhalin II Phase 2 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 II facilities to be expanded to accommodate additional
hydrocarbon export capacity from other projects, thereby becoming
a “Corridor to the marketplace”.
Sakhalin Oblast Governor Igor Farkhutdinov commented: “With
the commitment from Kyushu Electric, we are pleased that our very
close neighbor continues to confirm their interest in Sakhalin as
a strategic and reliable supplier of natural gas to Japan. It is
a great pleasure to share the development of this world-class project
with Kyushu Electric. Sakhalin will become even more attractive
not only as a source of energy supply but as a partner of Japan
through strong and long-term relationships.”
Mr.Shingo Matsuo, President of Kyushu Electric, commented, “We
recognise the importance of Sakhalin as a close, competitive and
flexible supplier of liquefied natural gas for the future.”
For more information see www.sakhalinenergy.com.
Posted by Richard Price,
Editor Pipeline Magazine
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