Shipments of Sakhalin LNG due to arrive in Japan early next year

YUZHNO-SAKHALINSK, Russia, Oct. 18 Kyodo - Shipments of liquefied natural gas from Sakhalin to Japan will begin early next
year under the Sakhalin-2 project now that a new plant is almost complete near
a warm water port in the southernmost part of the Russian island, according to
Sakhalin Energy Investment Company Ltd.
With Russia's first-ever LNG project, Tokyo is hoping to reduce its energy
dependence on the Middle East while Moscow is aiming to boost natural gas sales
in the Asia-Pacific region in addition to Europe.
The new plant, located in Prigorodnoye on Aniva Bay in the south of the island,
will liquefy natural gas transported from fields off the northeastern coast of
Sakhalin through an 800-kilometer pipeline by cooling it to minus 160 C.
Dedicated tankers will be used to transport the LNG to Japan.
Sakhalin Energy, which is headquartered in Yuzhno-Sakhalinsk, the largest city
on the island, and is in charge of the project, said it is aiming to produce
9.6 million tons of LNG a year.
More than 60 percent of the output will go to Japanese utilities firms
including Tokyo Electric Power Co. and Tokyo Gas Co., accounting for 7.5
percent of Japan's total natural gas imports. The remainder will be sold to the
United States and South Korea.
The LNG sales are based on 20-year contracts and the company says it is already
booked to full capacity.
Oil produced under the Sakhalin-2 project has been exported to Japan since
1999, when the sea around the island is not frozen. Since an oil pipeline has
been constructed to link extraction sites with Prigorodnoye, oil output
capacity is expected to reach 150,000 barrels a day throughout the year by the
end of 2008 from the current level of around 80,000 barrels, according to the
company.
While the global economic turmoil unleashed by the U.S. subprime mortgage
crisis could dampen demand for oil, Ian Craig, chief executive officer of
Sakhalin Energy, plays down the risk, pointing out that current oil prices are
much higher than those in the late 1990s.
Sakhalin-2 got under way in 1994 funded by Royal Dutch/Shell, Mitsui & Co. and
Mitsubishi Corp. Its total cost doubled from an initial projection to about $20
billion, or 2 trillion yen. The scheduled start of LNG shipments to Japan has
been delayed from November 2007 due to the increased cost and because Moscow
began to insist that it take control of the project.
The three investors in Sakhalin Energy were forced to cede a majority stake to
Russia's gas monopoly Gazprom in April last year. With the Russian firm
pledging to fully abide by export contracts, a Japanese banking syndicate
decided in June to lend a total of $5.3 billion for the project.
When it commenced in full swing, the project created around 7,000 jobs,
boosting the average monthly pay of Sakhalin residents by 150 percent over
seven years to 30,000 rubles, or about 115,000 yen, according to Alexander
Khoroshavin, governor of Sakhalin Oblast, a federal subject of Russia, of which
Skhalin is a part.
The regional economy, however, could be headed for a downturn because of
anticipated job losses now that much of the project's infrastructure is nearing
completion, business analysts said.
==Kyodo