Statement by Sakhalin Energy: Russian President Medvedev inaugurates the first LNG plant in Russia

New energy source comes onstream at Sakhalin II

Yuzhno-Sakhalinsk, 18 February 2009: President Dmitry Medvedev today opened Russia’s first liquefied natural gas (LNG) plant built by Sakhalin Energy Investment Company Limited (Sakhalin Energy).

The LNG plant is the heart of the Sakhalin II Project, one of the largest integrated oil and gas projects in the world.

The innovative and challenging Sakhalin II construction is near completion, and a new major energy source is now coming onstream. The infrastructure includes three offshore platforms, an onshore processing facility, 300 km of offshore pipelines and 1600 kms of onshore pipelines, an oil export facility and the LNG plant.

This frontier project lays the foundation for Russia to become a leading energy exporter to the highly competitive energy markets of the Asia-Pacific region. LNG exports are expected to begin shortly.

The strategic importance of the Sakhalin II project for the region was reflected in the distinguished guests at the
ceremony, which included Taro Aso, the Prime Minister of Japan, Prince Andrew, Duke of York, Maria van der Hoeven, the Minister of Economic Affairs of the Netherlands, other high-ranking officials and guests from Russia and countries that are co-partners in the project (the UK, the Netherlands and Japan).

Among the guests of honour – Sakhalin LNG customers, representatives from international financial institutions and senior executives of the Sakhalin Energy shareholders – OAO Gazprom, Royal Dutch Shell plc, Mitsui & Co., Ltd. and Mitsubishi Corporation.

Christopher Finlayson, Chairman of the Board of Directors of Sakhalin Energy, said: “This achievement is a take-off point, which opens up a new era in the history of Sakhalin. This has only been possible thanks to the cooperation between Sakhalin Energy and its shareholders, the Russian Federal government and the Sakhalin Oblast authorities”.

Nearly all of the 9.6 million tonne annual production capacity of the LNG plant has already been committed in long-term contracts to supply customers in Japan, Korea and North America.

Sakhalin LNG will be the first Russian gas supplied to these regions. It paves the way for Russia to new markets in the Asia-Pacific region and gives the country the status of a global energy power.

Sakhalin Energy’s Chief Executive Officer Ian Craig said: “Sakhalin has now firmly established its position on the global energy map. When the Sakhalin II project is fully on stream, it will supply around 5% of the world’s LNG and make a significant contribution to strengthening global energy security.”

Contact information
Sakhalin Energy
(Yuzhno-Sakhalinsk)
+ 7 4242 66 2000

Sakhalin Energy
(Moscow)
+ 7 495 956 1750

Notes for editors

Liquefied Natural Gas

To convert the natural gas to a liquid, it is cooled to approximately -160 ‘C. Liquefied natural gas (LNG) is a
colourless odourless liquid, less than half the density of water. The process of liquefying natural gas reduces its volume by 600 times. It remains in a liquid state under normal atmospheric conditions, and is transported by sea in specially designed LNG carriers.

Natural gas has the least environmental impact of all the fossil fuels and the global demand for it is steadily increasing.

Transporting gas in the form of LNG provides the flexibility of supply to accommodate any number of LNG buyers in different countries.

LNG Plant

Russia’s first LNG plant on Sakhalin Island features two processing trains, each with an annual capacity of 4.8 million tonnes. Once the plant has reached its design capacity of 9.6 million tonnes, expected in 2010, the highly automated facility will continue to be operated by only 300 personnel.

The construction of this world-class facility commenced in August 2003, with around 10,000 people employed on site at the peak of construction activities. Construction workers and specialists came from over 40 countries. The LNG plant on Sakhalin uses a specially adapted technology of double mixed refrigerant, which enhances the plant’s efficiency by taking advantage of Sakhalin’s cold climate.

The LNG plant output was contracted under long-term contracts (some 20 and more years) before the end of construction.

Approximately 65% of all Sakhalin LNG will be exported to nine buyers in Japan, the world’s largest LNG market. The remaining volume (in approximately an equal split) will go to South Korea and North America (LNG will arrive at a terminal in Mexico, and after regasification most part of the gas will be supplied to the U.S.). This will establish Russia as a new player on the Asian and American energy markets and will serve to strengthen the bilateral economic and trade relations between Russia and the Asia Pacific. It creates opportunities for countries in that region to diversify their gas supplies and lower their dependency on exports from other sources. The share of Sakhalin gas in the LNG consumption of Japan, in particular, will approach 8%.

Sakhalin II Project
The first LNG plant in Russia was built as part of Sakhalin II, one of the largest integrated projects in the world. The Sakhalin II Project is developing two oil and gas fields (Piltun-Astokhskoye and Lunskoye) offshore north-east Sakhalin for production and export of crude oil and liquefied natural gas (LNG).

The Sakhalin II Project introduced the Russian Federation to a range of innovative technologies, from LNG production to offshore development of hydrocarbon fields. The project, which brought together Russian and International expertise to overcome the formidable challenges, provides a potential model for similar collaboration in unlocking much needed reserves in Arctic regions.

Sakhalin Energy
Sakhalin Energy Investment Company Ltd. (Sakhalin Energy) was set up in 1994 for implementation of the Sakhalin II Project. The shareholders of the Company include Gazprom (50% + 1 share), Royal Dutch Shell (27.5% – 1 share), Mitsui & Co. Ltd. (12.5%) and Mitsubishi Corporation (10%).

The head office of Sakhalin Energy is in Yuzhno-Sakhalinsk.

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