Regional LNG: Shakalin Energy signs LNG deal with Chubu Electric
Wednesday, July 12 2006 - 03:06 PM WIB
Chubu Electric will buy about 500,000 metric tons of LNG a year from Sakhalin Energy Investment Co. starting in 2011 for 15 years.
The Shell-led project on Sakhalin island is almost sold out after buyers in Japan and the U.S. snapped up its gas amid forecasts of shortages in LNG supplies in the next few years. Those contracts will help ensure the viability of the US$20 billion project, which cost more than double Shell's original estimates after raw material prices and contractor fees rose.
Shell owns 55 percent of Sakhalin Energy, operator of the Sakhalin-2 project. Mitsui & Co.holds 25 percent and Mitsubishi Corp. has a 20 percent stake. The plant will produce 9.6 million tons of LNG a year.
Japanese power and gas utilities including Tokyo Electric Power Co. and Tokyo Gas Co. have agreed to buy a combined total of about 4.5 million tons of LNG a year from Sakhalin-2, which will be the closest LNG project to Japan, which currently imports gas from countries including Indonesia and Australia.
``Russian gas will add to Chubu Electric's variety of LNG supply sources and help the company raise its bargaining power in future negotiations with other producers,'' Tatsuya Tsunoda, an analyst at Mizuho Securities Co. in Tokyo, said.
Indonesia has failed in the past three years to meet commitments to supply customers in Japan, South Korea and Taiwan as falling reserves cut natural gas supplies to its LNG plants. Australia's North West Shelf venture will reduce exports to Japan as it increases sales to China.
``We're seeking any available sources of LNG to make up for an expected decline in our imports from Indonesia and Australia,'' Chubu Electric spokesman Hirotaka Iwase said on July 7. ``We need to sustain our imports of about 9 million tons a year in the years ahead to keep pace with growing requirements.''.
In the past eight months, Chubu Electric signed two LNG supply contracts with Malaysian and Australian producers for a combined 2 million tons a year, starting as early as 2010.
The utility in April said it will buy as much as 540,000 tons a year from Malaysia LNG Sdn., 90 percent owned by Petroliam Nasional Bhd., for 20 years.
Last November, it signed an initial accord with Chevron Corp.'s Australian unit to buy 1.5 million tons a year from the Gorgon project under a 25-year supply contract, starting in 2010.
Chubu Electric has four long-term LNG supply contracts with Australia's North West Shelf venture, Indonesia and Qatar for a combined 8.85 million tons a year. That accounts for 15 percent of Japan's overall LNG imports.
Indonesia supplies as much as 3.8 million tons, or 43 percent of the company's needs, under two agreements that end in 2010 and 2011. Chubu Electric's contract for 1.05 million tons a year from the North West Shelf venture will also expire around that time, Iwase said.
Indonesia may not extend contracts to supply 12 million tons of LNG a year to a group of Japanese buyers, including Chubu Electric, after expiry in 2010 because Indonesia wants to send the gas to Java, where demand is rising.
``Japanese power and gas utilities will be exposed to the risk of LNG supply shortages in coming years'' regardless of contracts with new producers, said Tsunoda at Mizuho Securities. ``Start-up dates for several LNG projects have been delayed recent years.''(*)