Local Gas Pricing Hurts Sakhalin Gas-Export Project Economics

Planned gas-pipeline projects on Sakhalin Island will suffer from the current gas-pricing scheme employed in the country. And lasting effects of the Russian financial crisis in August 1998 will only exacerbate the poor economics of the projects.Mandatory gas sales will be at less than $10/1,000 cu m ($0.28/Mcf).Worsening economicsDomestic sales of natural gas in Russia have been a money-losing business since the breakup of the Former Soviet Union.Before the financial crisis of August 1998, the state-regulated price of gas averaged $39.10/1,000 cu m (approximately $1.16/Mcf), which was higher than the average delivery cost of gas in Russia. The market, however, could pay only 65% of gas bi...

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