In a meeting with Russian Industry and Energy Minister Viktor Khristenko, Japanese Foreign Minister Taro Aso last week asked Russia to ensure Japan’s supply of LNG from the Sakhalin-2 oil and natural gas project.
As you can imagine, given Russia’s interests in the Asia-Pacific oil and gas market, Khristenko gave an upbeat reply, assuring Aso that terms of existing agreements would be observed.
Aso’s concerns are not unfounded, given Russia’s treatment of the original Sakhalin-2 partners, including two Japanese trading houses-Mitsui & Co. and Mitsubishi Corp.-along with Royal Dutch Shell PLC.
After sustained pressure-some call it blackmail-from Russia’s environmental authorities, the three original Sakhalin-2 partners reluctantly agreed last December to relinquish more than half of their combined stake in the project to OAO Gazprom (OGJ, Jan. 1, 2007, p. 29).
Sleepless nights
The sale gave the state-owned Russian gas company a stake of 50% plus one share in the project. The interests in the joint venture partnership, called Sakhalin Energy Investment Co. Ltd. (SEIC), now read as Gazprom 50% plus one share, Shell 27.5%, Mitsui 12.5%, and Mitsubishi 10%.
The sale also caused sleepless nights for some people in Japan because it raised concerns about whether the country’s electric and gas companies would be able to procure LNG from the project as initially agreed.
Since then, other Japanese firms have tentatively signed up for supplies from Sakhalin-2. On Feb. 9, for example, SEIC said it had signed a heads of agreement with Japan’s Osaka Gas Co. Ltd. for the supply of some 200,000 tonnes/year of LNG for more than 20 years.
The gas will be supplied from SEIC’s new LNG plant at Prigorodnoye on the southern tip of Sakhalin Island. The plant is about 95% complete, with the first deliveries expected next year, SEIC said in a statement. We believe them, too, especially Shell, Mitsubishi, and Mitsui.
Oz to the rescue
Not everyone is counting on Russian promises, though, and suppliers elsewhere are reaping the benefits. Indeed, Woodside Petroleum Ltd., operator of Australia’s North West Shelf venture, announced Feb. 22 the signing of a heads of agreement with Japan’s Kyushu Electric Power Co. Inc.
In announcing the deal, Woodside said all eight of the NWS venture’s original Japanese LNG customers have now renewed their long-term LNG purchase commitments.
That’s not surprising since there’s no sign of a Russian firm anywhere on the Australian horizon, a point underlined by Mitsunori Torihara, president of Tokyo Gas Co., which accounts for nearly 20% of Japan’s total LNG imports.
“Besides Sakhalin-2,” Torihara said in a recent interview, “we have procurement contracts with five production bases in Australia. There is little political risk in Australia, and we don’t have to worry about the risk of over-concentration because each of the bases has a different operating company.”