Lucian Kim / bloomberg Gazprom’s LNG plant, pictured under construction in 2006, will come on stream Wednesday on Sakhalin Island.

Gazprom to Open First LNG Plant

16 February 2009

Russian and Japanese leaders will jet to the Pacific island of Sakhalin this week for the debut of Russia’s first LNG plant, a project the Japanese hope will advance their energy security despite its controversial history.

President Dmitry Medvedev and Japanese Prime Minister Taro Aso, with a delegation of senior energy officials and executives, will watch one of the world’s largest liquefied natural gas plants come on stream Wednesday.

Gazprom controls the Sakhalin-2 project, which will produce 6 million tons of LNG this year, or around two-thirds of its annual capacity of 9.6 million tons.

“Very soon after the launch, the first tanker will set sail to Japan,” said Ivan Chernyakhovsky, spokesman for the project’s operating firm, Sakhalin Energy.

Late last year, Gazprom said its first LNG shipment would launch at the beginning of 2009, although this came after several delays since 2008. Earlier this week, the Energy Ministry said the first cargo would depart in March.

Gazprom bought control of the $22 billion project after a prolonged crisis that forced Royal Dutch Shell, the project’s former leader, and its partners to reduce their holdings. Analysts had expected that the battle would lead to delays.

Shell is now a minority shareholder along with Japan’s Mitsubishi and Mitsui.

The battle became symbolic of resource nationalism in Russia and the state’s desire and ability to renege on previous deals.

Resource-poor Japan, the top consumer of LNG, seems unshaken by the deal’s murky past.

“It’s a positive step. It gives the Japanese a chance to diversify the available volumes on the market,” said Jason Kenney, head of oil and gas research at ING in Edinburgh.

“It’s going to be part of the energy metric in Northeast Asia for many years,” he said, adding that other untapped reserves in the region could potentially add significant volumes.

Cooled to liquid form and transported on tankers, LNG became an instant favorite in Japan, as the country does not have easy access to pipelines.

Last year, Japan imported 69.26 million tons of LNG, with Malaysia, Indonesia and Australia providing more than half.

Japanese media this month reported that Gazprom was considering opening up a representative office in the country.

The ultramodern plant will dispatch specially created tankers around the world from Sakhalin, whose southern tip is a short boat trip from Japan.

The majority of exports — 65 percent — will go to Japan, while the remainder will be sold to South Korea and the LNG-hungry North American market via a Mexican terminal and on to the U.S. West Coast.

The gas, retrieved from offshore deposits, is chilled into liquid in an environment of minus 160 degrees Celsius.

LNG accounts for about 1 percent of U.S. gas consumption, with the bulk arriving on its East Coast from Trinidad and Tobago in the Caribbean. Gazprom has said North America will be among the main markets for future LNG exports from its other LNG projects.