Sakhalin-2 set to deliver LNG in February

The Sakhalin-2 project is expected to begin deliveries of LNG to Japan on Feb. 19, 2009, according to an executive of the Sakhalin Energy Investment Co., the firm in control of the development.

Nov 25th, 2008

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Nov. 25 -- The Sakhalin-2 project is expected to begin deliveries of LNG to Japan on Feb. 19, 2009, according to an executive of the Sakhalin Energy Investment Co., the firm in control of the development.

The statement was made over the weekend as Japanese Prime Minister Taro Aso and Russian President Dmitry Medvedev met on the sidelines of the Asia-Pacific Economic Cooperation forum in Lima, Peru.

The SEIC statement follows similar remarks by Shoei Utsuda, president and chief executive officer of Mitsui & Co., a partner in the Sakhalin-2 development.

In October, Utsuda said, "We believe we should be able to start shipping…as early as February 2009 or within the first quarter at latest."

He said the Sakhalin-2 LNG project was "97-98%" complete and that all of the future LNG output from the first two trains is already contracted for long-term export, with 60% going to Japanese customers and the rest to South Korea and the West Coast of North America.

Russians cause delays
Last December, Sakhalin Gov. Alexander Khoroshavin said the Sakhalin-2 project would not begin delivering LNG until spring 2009 due to "difficulties" encountered in the development.

"Sakhalin-2 originally planned to ship LNG in 2008, but during construction of the pipeline the company ran into certain difficulties," said Khoroshavin, who blamed the delay in part on 19 "seismic faults."

"That delay says clearly that deliveries won't start in 2008," he said.

However, other delays occurred when Russia withdrew approval for the project, citing environmental concerns.

Many thought the real reason was Moscow's desire to tighten its grip on energy resources. The problem was resolved only when it was agreed that OAO Gazprom, Russia's natural gas monopoly, would acquire a majority interest in the project.

Now, Gazprom holds a 50%-plus-one stake, Royal Dutch Shell PLC holds a 27.5%-minus-one stake, Mitsui & Co. holds 12.5% and Mitsubishi Corp. holds the remaining 10%.

Ships readied
Meanwhile, ships for the project are being lined up for delivery duty.

In late October, officials for Sakhalin-2 said the 147,200 billion cu m Grand Mereya was handed over by Japan's Mitsui Engineering & Shipbuilding Co.—about 6 months later than its scheduled March-April deadline.

At the time, they were seeking short-term employment for the ship, which would not be needed for Sakhalin-2 until first-quarter 2009, when its first cargoes are due to be delivered.

The Grand Mereya joined two other LNG carriers built especially for the project: the 2007-built Grand Elena and 2008-built Grand Aniva, which were handed over on schedule from Mitsubishi Heavy Industries.

Both ships have been sublet to Taiwan Maritime Transport in the interim year before the Sakhalin-2 project comes online.

Contact Eric Watkins at hippalus@yahoo.com.

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