Regional LNG: Hiroshima Gas to buy LNG from Sakhalin: Report
Tuesday, March 22 2005 - 12:10 PM WIB
A draft agreement will likely be reached in the next few months, the officials told Dow Jones Newswires, but they declined to speculate when a formal deal would be ready for signing.
If realized, Hiroshima Gas will buy a maximum of 200,000 metric tons a year of LNG from Sakhalin Energy for 20 years starting from early 2008, on a free-on-board basis, the officials said.
A spokesman of Hiroshima Gas, however, declined to comment on negotiations being held between his company and Sakhalin Energy, but said: "we are still in talks."
The talks with Sakhalin Energy come at a time when Hiroshima Gas is planning to boost its natural gas import volumes to capitalize on growing industrial demand in Hiroshima Prefecture, western Japan.
In late February, Hiroshima Gas agreed with Elpida Memory Inc to supply an additional volume of gas to the computer chip maker, after Elpida starts commercial operations in December 2005 at its newly-built chip factory in the prefecture.
Hiroshima Gas already supplies natural gas to Elpida's existing chip plant.
According to the spokesman of Hiroshima Gas, Elpida Memory is the largest of his company's industrial customers.
Together with volumes from Sakhalin Energy, Hiroshima Gas' LNG imports would surge to 510,000 tons/year from the current 310,000 tons/year.
The contract with Sakhalin Energy - which would mark the fifth deal by a Japanese power and gas utility to import LNG from Russia on a long-term basis - will also help Hiroshima Gas diversify LNG supply sources.
Hiroshima Gas now imports all of 310,000 tons of LNG from Indonesia's Pertamina, under the 20-year contract which started in 1996.
It distributes gas to its 430,000 customers including households, commercial and industrial users, in five major cities of the prefecture, such as Hiroshima city, Onomichi city, and Kure city.
Given the long voyages required for LNG from exporters like Indonesia, Australia and Middle Eastern nations, Japanese utilities are attracted to Sakhalin's proximity to their local markets.
As part of preparations for importing Sakhalin LNG to its import tank terminal, Hiroshima Gas has signed a contract with Kawasaki Shipbuilding Corp. for a new LNG carrier.
Under the contract, Kawasaki Shipbuilding will build an LNG ship that can carry 19,100 cubic meters of gas, with completion set for September 2007.
Delivering LNG cargoes in its own vessel is expected to be cheaper and logistically more sound than buying LNG on a cost, insurance, and freight basis.
Over the past two years, Tokyo Electric Power Co, Tokyo Gas Co, Kyushu Electric Power Co, and Toho Gas Co, have agreed with Sakhalin Energy to purchase LNG on a multiyear basis.
Under the Sakhalin-2 project, Sakhalin Energy Investment., a joint venture between Royal Dutch/Shell Group, Mitsui & Co, and Mitsubishi Corp, has started building two LNG production plants at the port of Prigorodnoye in southern Sakhalin. (*)