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Shell plans to expand Russian LNG plant as Asian demand grows

Gulf Times (Qatar): Shell plans to expand Russian LNG plant as Asian demand grows

Published: Saturday, 4 June, 2005

By Eduard Gismatullin and In-soo Nam

LONDON/TOKYO: Royal Dutch/Shell Group, Europe’s second-biggest oil company, may expand its $12bn liquefied natural gas project on Russia’s Sakhalin Island as demand for the fuel rises in Asia.

Sakhalin Energy Investment Co, led by Shell, may add to the two production lines that are due to begin supplying 9.6mn metric tonnes a year of LNG from Russia’s Pacific Coast by 2007. The venture has sales contracts for 7.1mn metric tonnes a year and plans to sign up the rest by year-end, said Viktor Snegir, Sakhalin Energy’s commercial general manager.

Increased Russian supply will help to meet growing demand in Japan and South Korea, the world’s two biggest buyers, and China, which may need 30mn tons a year by 2010.

Demand for LNG is rising as utilities switch to cleaner-burning gas and oil trades above $50 a barrel.

“The Asian LNG market will experience a super-tight situation from 2008 for at least three years because of a lack of available supply,’’ said Park Jae Young, an LNG buyer at Korea Gas Corp, the world’s largest buyer of the fuel. Shell owns 55% of Sakhalin Energy, Japan’s Mitsui & Co holds 25% and Mitsubishi Corp owns 20%.

The Russian government may approve additional spending for the Sakhalin II project this year. The group’s supervisory panel, which includes three representatives from the federal government, three from the Sakhalin region and two from each project shareholder, approved $2.5bn of spending for this year, while Sakhalin Energy requested $4bn, Snegir said in an interview yesterday in Paris. The project development won’t be delayed, he said.

“There are all the reasons to expand,’’ Snegir said. “Judging the market demand and judging the situation where several different companies are potentially interested in buying gas from Sakhalin, I think, that’’ the project expansion will proceed.

Japan is the world’s largest LNG importer, accounting for about half of the 123mn tonnes traded in 2003. Demand for LNG in South Korea may rise at least 42% to more than 30mn tonnes a year by 2017, Kim Myeong Nam, a director of Korea Gas’s international projects office, said in March.

India, which started importing LNG last year, may increase consumption to 10mn tonnes by 2007, Suresh Mathur, managing director at Petronet India Ltd, India’s first LNG importer, said on February 9.

China, which will get its first shipments next year, may consume 30mn tonnes a year by 2010, Fu Chengyu, chairman and chief executive officer of CNOOC Ltd said in Hong Kong on May 25. “New demand is also expected from Thailand and Singapore, let alone China and India,’’ Korea Gas’s Park said.

US imports may rise to 40mn tonnes by 2010, according to John Banner, president of the LNG marketing arm at Australia’s North West Shelf venture. The US imported 13.7mn tonnes in 2004, according to the Department of Energy’s website.

Taiwan last month said it is considering buying LNG from Russia to diversify supplies. The country expects imports will grow 50% to about 10mn tonnes a year by 2010.

Gazprom, Russia’s natural gas monopoly, is seeking a 25% stake in the Sakhalin Energy venture to accelerate plans to join the LNG market and supply the US, the world’s largest energy consumer. “Russia is a new player in the market,’’ Snegir said. “Russia is competing now’’ with Indonesia and Qatar.

Sakhalin Energy won orders to replace some Indonesian deliveries to Japan as companies such as Tokyo Gas Co, Tokyo Electric Power Co, Asia’s biggest power producer, and Tohoku Electric Power Co seek to diversify supplies.

The Shell unit has signed long-term agreements this year to supply 3.23mn tonnes a year, raising its orders by 83%. Tohoku Electric, Japan’s fourth-largest power company, has a five-year contract ending in 2009 for 830,000 tonnes a year from Indonesia’s PT Arun NGL. Tohoku Electric this week agreed with Sakhalin Energy to buy as much as 420,000 tonnes a year of the fuel over 20 years starting from 2010.

Sakhalin Energy also this week agreed to supply 210,000 tonnes of LNG a year over 20 years to Hiroshima Gas Co, which now relies on the PT Badak NGL project in Indonesia. – Bloomberg

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