Regional LNG: Russia's Sakhalin II finalizes 24-year LNG deal with Tokyo Gas

Sakhalin Energy, a joint venture which operates the Sakhalin II oil and gas project in Russia?s Far East, said Friday that it agreed to sell Tokyo Gas Company 1.1 million tons a year of liquefied natural gas (LNG) for the next 24 years, marking the project?s first full sales and purchase agreement (SPA), Reuters reported

The deal finalizes an agreement that the two firms had signed in principle in May 2003. Sakhalin Energy will start supplying LNG to Japan in November 2007, the group?s chief executive, Ian Craig, said in a statement.

Tokyo Gas said it decided to buy LNG from the Royal Dutch/Shell-led Sakhalin II project, based on an island in Russia?s Far East, because of its proximity to Japan. ?The shipping cost from Sakhalin is much cheaper (than from elsewhere),? a Tokyo Gas spokesman, quoted by Reuters said. A spokesman for Sakhalin Energy said the deal was worth about $3 billion over the life of the contract.

Japan?s biggest gas distributor, Tokyo Gas currently buys about 8.2 million tons of LNG from suppliers such as Malaysia and Indonesia.

Sakhalin II is Russia?s largest ever foreign investment. Operator Shell owns a majority 55 percent stake. Japan?s Mitsui & Co. and Mitsubishi Corp. hold 25 percent and 20 percent respectively.

Shell said on Thursday, Feb. 17, that it had sold 70 percent of the 9.6-million-ton annual capacity of the $10 billion project, and said it expected to sell all of it within three years. (*)