Sakhalin-2 deliveries to start in early 2009

Shipments of LNG to Japan from the Sakhalin-2 project in far eastern Russia are expected to begin early next year, according to two Japanese partners in the project.

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Oct. 21 -- Shipments of LNG to Japan from the Sakhalin-2 project in far eastern Russia are expected to begin early next year, according to two Japanese partners in the project.

"We probably can start delivery in the first quarter," said a spokesman of Mitsubishi Corp., while one for Mitsui & Co. said "Construction work is more than 98% completed, so we will be able to start delivery early next year."

The Sakhalin Energy Investment Co partners originally aimed to start delivery in 2008, but delayed the schedule to 2009 citing a shortage of resources. Russia also briefly froze the project, citing environmental problems, which contributed to the delay.

Earlier this month, Russian authorities visited the site and said it no longer posed any threat to the environment.

"This project is exemplary from the point of view of the environment," said Russian Natural Resources Minister Yuri Trutnev after the inspection.

In September, Sakhalin Energy started to send natural gas from the Molikpaq offshore drilling platform to a gas processing facility on the coast of Sakhalin Island. It said gas would then be piped from the processing facility to its LNG plant on the island.

Since then, there have been new developments concerning the arrangement for ships to transport the LNG to markets.

In early October, the Japan Bank of International Cooperation (JBIC) joined the two banks already financing Sovcomflot's project to build two LNG tankers for the project.

In addition to JBIC, the consortium of creditor banks includes Mizuho Corporate Bank and Bayerische Landesbank.

"JBIC's entry into the project will make it possible to optimize [the] financing expense for the borrowers," said Russia's state-owned Sovcomflot, which is constructing the ships along with NYK.

The two 145,000 cu m ships—the Grand Aniva and the Grand Yelena—are being financed by a $320 million loan for 12 years.

The loan is secured by earnings from the operation of the vessels under long-term contracts to deliver LNG to Japan, South Korea and the US.

The Grand Elena, built in 2007, and the Grand Aniva, built in 2008, were delivered on schedule from Mitsubishi Heavy Industries.

Both vessels have since been sublet to Taiwan Maritime Transport (TMT) in the interim year before the Sakhalin-2 project gets ready for start-up.

Delivery of the third and final ship ordered by the Sakhalin partners, the 147,200-cu m Grand Mereya, is due this month after several delays.

The ship was originally listed as being due for handover from Japan's Mitsui Engineering & Shipbuilding Co in April. Later, a date in May was given. In July, project officials said the vessel would be delivered in August.

"We are finally getting to the end of the technical problems," one MES official said. "The delays were caused by failure of the [ship's] low-duty boil-off gas compressors," he said.

Industry sources also suggested that that Sakhalin Energy Investment Co was in no hurry to take delivery of the vessel, which it had planned to trade on the spot market until exports from the project start next year.

In terms of exports, Sakhalin Energy already has signed long-tem supply contracts with Japanese, South Korean and US buyers for nearly all of the LNG from the island's 9.6 million tonnes per year capacity plant.

More than 60% of that output will go to Japanese utilities firms including Tokyo Electric Power Co. and Tokyo Gas Co., accounting for 7.5% of Japan's total natural gas imports.

The remainder of Sakhalin-2's output will be sold to the US and South Korea.

Mitsubishi Corp. has a 10% stake in the project, while Mitsui & Co. owns a 12.5%. Russia's OAO Gazprom holds 50% plus one share, and Royal Dutch Shell PLC has 27.5% minus one share.

Contact Eric Watkins at hippalus@yahoo.com.

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