Regional LNG: Shakalin LNG expects to close another Japan deal soon

Royal Dutch/Shell said it is close to an agreement to sell LNG from its huge Sakhalin project in Russia's Far East to a Japanese utility in a deal that would be the scheme's fifth sales contract with Japan, a company official was quoted by Reuters Monday

"We expect another announcement in the very near future. Four Japanese customers have committed and we are in discussions with five other big Japanese utilities," Peter de Wit, regional business director for Asia Pacific at Shell, told Reuters on the sidelines of a recent energy conference in Qatar.

De Wit declined to name potential buyers for fuel from the $10-billion Sakhalin liquefied natural gas (LNG) project that is due to start production in 2007.

Earlier this month, Shell-led Sakhalin Energy said it had signed a 23-year sales agreement with Japanese refiner Toho Gas. Other Japanese buyers so far are Kyushu Electric, Tokyo Gas and Tokyo Electric Power Co.

Sakhalin is expected to produce 9.6 million tonnes of LNG a year. Shell, which decided to go ahead with the project last year with Japanese partners Mitsui & Co Ltd and Mitsubishi Corp, has already sold 3.1 million tonnes a year of capacity, de Wit said.

Output from the first train, which will produce five million tonnes a year of LNG, is likely to be exported to Japan, whose northern coast lies just 40 kilometres (25 miles) from the southern tip of Sakhalin Island.

LNG from the second train may be shipped to the west coast of North America, where Shell has agreed with U.S.-owned Sempra to build an import terminal in Baja, California, in Mexico which would supply the Mexican and south-west United States markets.

Other target markets include South Korea and China.

"China will be energy short and is trying to buy LNG from Australia and the Middle East. We are in discussions with parties in China," de Wit said.

The Sakhalin project hopes to capture a quarter of the east Asian market by 2010.

LNG is gas that has been cooled into liquid form which can be transported by tanker. On arrival it is processed back into gas and fed into pipeline networks.

LNG technology is used to exploited reserves like Sakhalin which would be uneconomic if pipelines had to be built.(*)