Gazprom, Kogas sign MOU for Sakhalin-2 pipeline project

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, June 25 -- Russia’s OAO Gazprom and South Korea’s Korea Gas Corp. (Kogas) have signed a memorandum of understanding to study the possibilities of supplying Russian natural gas to South Korea by extending the Sakhalin-Khabarovsk-Vladivostok (SKV) gas pipeline.

The agreement with Kogas comes in the wake of a recent visit to Japan by Russian leaders, including Prime Minister Vladimir Putin and Gazprom Chief Executive Alexei Miller, aimed at securing Japanese investment in the same pipeline development.

Gazprom started building the 1830-km SKV pipeline in May and plans to complete its construction by yearend 2011. The line’s initial capacity will be 7 billion cu m (bcm), according to Gazprom Deputy Chief Executive Alexander Ananenkov, who said it eventually will be increased to 47 bcm.

Kogas already receives 1.6 million tonnes/year of LNG from the Sakhalin-2 project following its launch in April, and under terms of an agreement signed by Kogas and Gazprom in September 2008, the South Korean firm will import 10 bcm/year of Russian gas during 2015-45.

However, Kogas is now said to be seeking to boost its imports of Russian gas by extending the SKV gas pipeline into South Korea—a distance of about 150 km.

According to analyst Global Insight, two pipeline options between Russia and South Korea are currently being evaluated: an overland route via North Korea and a direct subsea line.

“The first option suffers from severe geopolitical risks while the second option presents partners with formidable technological and financial challenges,” GI said, adding, “A drawn-out negotiation and planning process for the project…can be assured in either scenario.”

Underlining that point, Russian officials also have been courting Japanese investors into joining the SKV pipeline project.

Earlier this month, Russia’s Putin visited Tokyo and invited Japanese companies to participate in the construction of the line as well as other facilities.

In addition to the SKV line, Gazprom also is said to be considering the construction of a gas liquefaction plant and a gas chemical facility on Sakhalin Island.

During the Tokyo visit, Gazprom’s Miller met with Eizo Kobayashi, president of Itochu Corp., Yutaka Kase, president of Sojitz Corp., Toru Ishida, director general of the Natural Resources and Energy Agency of Japan, Hiroshi Watanabe, president of the Japan Bank for International Cooperation, and Massami Iijima, president and chief executive officer of Mitsui.

As part of the visit, an MOU was signed with Japan’s Natural Resources and Energy Agency under the Economy, Trade, and Industry Ministry, Itochu, and Japan Petroleum Exploration Co.

The MOU stipulates joint exploration of gas around Vladivostok, as well as the follow-up transportation, marketing and processing of the final products to potential customers in Asia-Pacific, including Japan.

Meanwhile, Gazprom’s Ananenkov said the state firm will this year increase its spending on construction of the SKV line to 50 billion rubles from the 20 billion rubles planned earlier.

Contact Eric Watkins at hippalus@yahoo.com.

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