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Bloomberg: Osaka Gas Agrees to Buy LNG From Russia’s Sakhalin-2 (Update1)

By Shigeru Sato

Feb. 9 (Bloomberg) — Osaka Gas Co., Japan’s second-biggest distributor of the fuel, said it signed an initial agreement to purchase liquefied natural gas from Royal Dutch Shell Plc.’s Russian venture, to diversify sources of supply.

Under the 23-year agreement starting in 2008, Osaka Gas will import about 200,000 metric tons of LNG a year from Sakhalin-2, the company said in a statement issued in Tokyo today.

Osaka Gas joins Tokyo Electric Power Co. and Tokyo Gas Co. in signing contracts with the Russian venture, part of efforts by utilities in Asia’s largest economy to cut reliance on Indonesian supplies. Shell and its two Japanese partners in December agreed to sell Russia’s OAO Gazprom half their stakes in Sakhalin-2.

A final contract is due to be signed after further negotiations, Osaka Gas said. The initial accord was reached yesterday.

The Osaka-based company imported 6.79 million tons of LNG in the year ended March 2006 from Indonesia, Brunei, Qatar, Australia and Oman. During the nine months ended Dec. 31, the company sold 5.7 percent more of the fuel in the Osaka area than a year earlier, it said Jan. 19.

Osaka Gas bought 2.88 million tons of LNG from Indonesia in the last fiscal year ended March 2006, accounting for 42 percent of total imports, it said in today’s statement.

Indonesia’s energy shipments to Japan have fallen in the past three decades because of depleting reserves, forcing the country to seek supplies in Australia and Russia.

Indonesia may not extend LNG contracts with Japan because it wants to channel supplies to Java, where factories are switching to the fuel to counter the rising cost of oil-based fuels after the government removed subsidies, Energy Minister Purnomo Yusgiantoro said in February last year.

Japan’s imports of LNG from Indonesia dropped 22 percent in the last decade, declining to 14.3 million metric tons in 2005 from 18.4 million tons in 1996, according to the Ministry of Finance’s Web site.

The Hague-based Shell and Japanese partners Mitsui & Co. and Mitsubishi Corp. will own 27.5 percent, 12.5 percent and 10 percent of Sakhalin-2, respectively once the equity sale to Gazprom is complete.

Sakhalin-2’s LNG site is 95 percent complete and long-term gas sales for the second phase of the project have been completed, Shell’s head of gas and power Linda Cook said Feb. 2.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline. On arrival, it is converted back to gaseous form for delivery to users such as power stations.

To contact the reporter on this story: Shigeru Sato in Tokyo at [email protected] .

Last Updated: February 8, 2007 21:43 EST

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