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The Wall Street Journal: Sakhalin Delays Exports of LNG To Asia and U.S.

REUTERS NEWS SERVICE
December 17, 2007 11:58 p.m.; Page A16

Sakhalin Energy Investment Co., the group behind one of the world’s top liquefied-natural-gas projects, warned Monday that it will delay first exports to customers in Asia and the U.S. by at least a few months.

The group — which is led by Russian gas-export monopoly OAO Gazprom and involves Anglo-Dutch oil major Royal Dutch Shell PLC and Japanese companies Mitsui & Co. and Mitsubishi Corp. — said it was talking to customers but declined to comment on whether it would have to pay fines for delays and if it was seeking bridging supplies.

“We aim to complete the main construction and commence LNG plant startup at the end of 2008. LNG exports are expected to start shortly thereafter,” a Sakhalin Energy spokesman said.

The group, which has signed up customers for almost all of its production volumes, had previously pledged to start exports in the third quarter of 2008.

The development confirms expectations by many analysts that a battle between Shell and the Kremlin for control over the project last year would lead to delays. Shares in Shell and Gazprom were unaffected by the news Monday.

Sakhalin Energy has sold more than 90% of the planned LNG production of 9.6 million metric tons a year under long-term contracts, with 60% going to Japan and the rest supplied to South Korea as well as to North America’s West Coast. The biggest customers include Tokyo Gas Co., Tokyo Electric Power Co. and Korea Gas Corp.

The $22 billion project had long been led by Shell, but the company agreed to sell control in the project to Gazprom last year after Russia’s environmental watchdog agency threatened to strip it of production licenses for breaking ecological rules. Analysts interpreted the threat as a Kremlin reaction to Shell’s decision to increase spending on the project, without seeking permission from the authorities, and Shell’s move to delay the first LNG shipments from 2007.

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