Regional LNG: Sakhalin Energy eyes more Japan LNG sales in 2004: Report

A Royal Dutch/Shell Group venture in Russia expects to sell more liquefied natural gas to Japan later this year, after last month securing a fourth agreement to sell fuel from Russia's largest single oil and gas project, Bloomberg reported Thursday.

Sakhalin Energy Investment Co. is building a liquefied natural gas plant and an 800-kilometer pipeline in Russia's Far East. The $10 billion second phase of the Sakhalin-2 project, scheduled to begin shipments in 2007, has so far found buyers for less than a third of its production.

?We'll continue to get more contracts in Japan; we're working on a number right now,? Steve McVeigh, chief executive officer of Sakhalin Energy, told Bloomberg in a telephone interview from Moscow. ?I'd hope by the end of the year we'll see another couple of contracts there.?

Shell, based on London and The Hague, is counting on projects such as Sakhalin and ventures in Nigeria and Qatar to boost oil and gas production and reserves. Shell's London-traded shares have fallen 12 percent this year, mainly because the company said it had overstated its oil and natural gas reserves.

Last month, the venture agreed to a 23-year contract to sell liquefied natural gas to Japan's Toho Gas Co. The project had earlier won three contracts, all from Japan, to sell a total of 2.8 million metric tons a year of LNG.

Shell owns 55 percent of Sakhalin Energy. Mitsui & Co. and Mitsubishi Corp. of Japan own the rest. They are developing the Lunskoye gas field and building an LNG plant on Sakhalin Island that will make 9.6 million tons a year of the fuel.

Cost `Pressures'

Shell on Friday said that the Sakhalin project is facing extra costs, after the London-based Times had reported that the venture will cost $2 billion more than earlier estimated. The partners haven't increased the budget, McVeigh said.

?As far as any cost increases that amount to that magnitude, I don't know where they came from,? he said. ?There's always pressures on a project of a long-term nature like this,? he said, without specifying the extent of any cost increase.

The $10 billion planned budget for the project will be spent through 2014. Any increase would need to be discussed with the Russian government first, McVeigh said.

LNG is gas that has been compressed and cooled to a liquid so it can be loaded onto ships and sent to markets that aren't linked to gas fields by pipelines. The fuel is later returned to gaseous form and piped to businesses and homes. (*)