Regional LNG: Sakhalin-2 hopes to sell LNG to US
Wednesday, November 19 2003 - 01:40 AM WIB
"We are talking with many companies in Japan and elsewhere and we expect to make some announcements early next year," Steve McVeigh, CEO of the Sakhalin Energy Investment Co. told reporters on the sidelines of a London conference on Sakhalin, an energy-rich island off Russia's Pacific coast.
McVeigh said that while Japan and South Korea remained the primary target markets for Sakhalin LNG, the consortium was increasingly hoping to supply fuel to the United States where interest in LNG has been growing.
U.S. LNG imports are expected to climb sharply to meet an expected 50 percent increase in consumption over the next two decades and several terminals are planned for the U.S. West Coast -- convenient for shipments from Sakhalin.
"Several companies are planning to build LNG receiving terminals on the U.S. West Coast. We are talking with all of them this particular moment in time," McVeigh said.
"It could happen next year. It all depends on how rapidly the terminals proceed with their plans; they are still in an early stage," he added.
Sakhalin-2 earlier this year managed to sign supply deals for LNG with three Japanese companies, allowing it to proceed with investment to build what will be one of the world's largest gas liquefaction plants.
It has signed long-term deals to supply 3.8 million tonnes a year starting from 2007 while its LNG plant will have an annual capacity of 9.6 million tonnes.
Some analysts say the group's bargaining power could have been weakened by the terminal's huge capacity and the fact that it has decided to go ahead with construction despite having deals in hand for only 3.8 million tonnes.
McVeigh however dismissed this. He said Sakhalin-2's advantages of location and cheap shipping costs put it in an advantageous position over other LNG suppliers in the region.
"Of course we would like to sign deals for the full amount before we start producing but that is not a necessary prerequisite," he said. "The market is set by competition not by our capacity."
"There are expansion volumes on our base contracts that can be added to, so I am not at all fearful about the market."
McVeigh said one of the project's advantages was the presence of oil as well as gas. The group is ramping up production of its light sweet Vityaz crude with investments of $1.4 billion in the initial crude oil phase of the project.
Reserves at Sakhalin-2 are about 1 billion barrels of oil and over 17 TCF of natural gas and current oil production stands at about 70,000 barrels per day.
"The liquid helps balance our project. We are not completely dependent on gas," he added.
Besides Royal Dutch/Shell, Sakhalin-2 includes Japanese trading houses Mitsui & Co. Ltd. and Mitsubishi Corp.(*)