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02/19/2009 |
Russia Opens Window to Asia With First LNG Plant (Update1)

By Stephen Bierman and Lyubov Pronina

Feb. 18 (Bloomberg) -- OAO Gazprom inaugurated Russias first liquefied natural gas plant off the countrys Pacific coast, opening up new export routes to Asia and the U.S.

Russia is building a window to Asia, Japanese Prime Minister Taro Aso said at the opening ceremony on Sakhalin Island today. The plant will provide about 7 percent of Japans LNG demand, he said.

State-run Gazprom, which ships all its gas exports to Europe via pipelines, plans to break into new markets by cooling gas to a liquid for transportation by tanker. The new plant, 160 kilometers (100 miles) from the northern tip of Japans Hokkaido, has contracts to deliver LNG to nine customers in Japan, one in South Korea and one in North America.

The nine Japanese customers will account for 65 percent of the LNG produced at Sakhalin-2, according to Gazprom. The new facility, part of the Sakhalin-2 project, will produce 3.2 million metric tons of LNG this year, or about 50 cargoes, said Ivan Chernyakhovsky, a spokesman for operator Sakhalin Energy.

Russia, the worlds largest energy producer, also plans to boost crude oil shipments to Asia when it completes the first link of the East Siberia-Pacific Ocean pipeline later this year. Yesterday Russia agreed to supply China with oil for 20 years in return for a $25 billion credit. Two gas pipelines to China are also planned.

Annual Capacity

The Sakhalin plant should reach annual capacity of 9.6 million tons of LNG next year and Sakhalin-2 at full capacity will account for 5 percent of global production, according to Sakhalin Energy. Gazprom controls 50 percent plus one share of the project, while Royal Dutch Shell Plc has 27.5 percent, Mitsui & Co. has 12.5 percent and Mitsubishi Corp. the remaining 10 percent.

Russia, holder of the worlds largest gas reserves, is seeking to coordinate investment and output with other producing nations as LNG opens up markets unreachable by pipeline. Gazprom, which supplies about 25 percent of Europes gas and halted shipments for two weeks last month amid a spat with Ukraine, plans to spend $45 billion on LNG projects in the next 20 years.

We will pay particular attention to developing the LNG business, Gazprom Chief Executive Officer Alexei Miller said today. By 2030 we intend to deliver about 90 million tons of LNG to the global market. Qatar, the worlds LNG leader, currently has an annual capacity of 31 million tons.


Russias sole gas exporter, with no LNG experience of its own, took control of the Sakhalin-2 development from Shell in 2006 after regulators threatened to close the $22 billion project on environmental grounds. The 100 percent foreign-owned project, approved as a production sharing agreement in 1994, had become an anomaly as then-President Vladimir Putin tightened control over the domestic energy industry.

The new facility will initially operate one production unit, with a second to become operational sometime in the first half of this year, Chernyakhovsky said. A third unit, or train, is a possibility, said Malcolm Brinded, executive director for exploration and production with Shell. Customers would have to be signed up first
, he said.

I cant hide that we are very satisfied, Russian President Dmitry Medvedev, a former Gazprom chairman, said at the opening ceremony. He later toured a 15-story tanker with the Japanese prime minister and Dutch Economic Affairs Minister Maria van der Hoeven. At 288 meters (945 feet) long, Grand Aniva is Russias biggest commercial vessel, Captain Alexei Kharitonov said.

Gazprom, which plans to start deliveries from Sakhalin next month, is also developing the Arctic Shtokman project with partners StatoilHydro ASA and Total SA. Shipments from there are scheduled to start in 2012. Later the company wants to build more LNG plants on the remote Yamal peninsula, possibly in cooperation with Shell or ConocoPhillips.

To contact the reporters on this story: Stephen Bierman on Sakhalin Island at sbierman1@bloomberg.net; Lyubov Pronina on Sakhalin Island at lpronina@bloomberg.net


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