3/9/2014 6:06
RIA Novosti

Analysis & Opinion

LNG puts Sakhalin on map

13:11 19/02/2009

 

MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - Russia's first liquefied natural gas (LNG) plant was opened on February 18 in a ceremony on Sakhalin attended by Russian President Dmitry Medvedev and Japanese Prime Minister Taro Aso.

The plant is part of the Sakhalin-II project. Its capacity of 9.6 million metric tons a year will make Sakhalin a major new source of fuel for the Asia-Pacific region. Japanese, South Korean and U.S. companies have already purchased its output for the next 25 years.

Sakhalin-II was planned by Russia and foreign investors to tap hydrocarbons from the north-eastern shelf of Sakhalin Island in the Okhotsk Sea and sell them on energy-hungry Asia-Pacific markets. In 1994, Sakhalin Energy joint venture was founded to run the project.

Sakhalin-II operates under a production sharing agreement, which grants foreign investors considerable tax breaks. It was these breaks that in the 1990s, when oil cost less than $20 per barrel, attracted serious foreign investors to launch the project from scratch despite a severe sub-Arctic climate and a remote and little developed region with practically no industrial infrastructure.

Under a deal concluded in late 2006 and early 2007, Russia's oil and gas giant Gazprom became one of the Sakhalin Energy shareholders by buying a controlling stake in the venture (50% plus one share). The other shareholders are Royal Dutch Shell (27.5%) and Japan's Mitsui (12.5%) and Mitsubishi (10%).

All the main Sakhalin-II facilities are fully operational now. There are three offshore platforms producing hydrocarbons and a trans-Sakhalin oil and gas pipeline system (300 kilometers underwater and 800 kilometers overland) to transport hydrocarbons from the north-eastern tip of the island to its southern part. It is there that Russia has built its first LNG plant in Prigorodnoye with an annual capacity of 9.6 million metric tons of LNG for subsequent shipment by sea tankers.

Recoverable reserves of the project are estimated at 150 million metric tons and 500 billion cubic meters of gas. The overall cost of the project is $20 billion, most of it in the unique LNG plant.

Many forecasts say liquefied natural gas will dominate the world gas market in the future. In 2030, LNG is expected to account for 60% of all international gas trade, compared with 30% now.

Russia's emergence as a dynamic and competitive LNG player will give it a role in shaping the global gas market and help gain access to new and previously closed geographical niches, including not only the Asia-Pacific region, but also the U.S. Atlantic seaboard. With time, growing world demand for LNG may push its prices up.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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