Shipments of Sakhalin LNG due to reach Japan early next year

YUZHNO-SAKHALINSK, Russia (Kyodo) After a long delay, shipments of liquefied natural gas from Sakhalin to Japan are scheduled to begin early next year under the Sakhalin-2 project.

According to Sakhalin Energy Investment Company Ltd., the project is up to speed now that a new plant is almost complete near a warm water port in the southernmost part of the Russian island.

With Russia's first-ever LNG project, Tokyo is hoping to reduce its energy dependence on the Middle East.

Moscow meanwhile is aiming to boost natural gas sales in the Asia-Pacific region to add to the sales it already makes to Western Europe.

The new plant, located in Prigorodnoye on Aniva Bay, will liquefy natural gas transported from fields off the northeastern coast of Sakhalin through an 800-km pipeline by cooling it to minus 160 degrees. Dedicated tankers will be used to transport the LNG to Japan.

Sakhalin Energy Investment, headquartered in Yuzhno-Sakhalinsk, the largest city on the island, said it is aiming to produce 9.6 million tons of LNG a year.

More than 60 percent of the output will go to Japanese utilities, including Tokyo Electric Power Co. and Tokyo Gas Co., accounting for 7.5 percent of Japan's total natural gas imports.

The remainder will be sold to the United States and South Korea.

The LNG sales are based on 20-year contracts and the company says it is already booked to full capacity.

Oil produced under the Sakhalin-2 project has been exported to Japan since 1999 — when the sea around the island is not frozen. Because an oil pipeline has been constructed to link extraction sites with Prigorodnoye, oil output capacity is expected to reach 150,000 barrels a day throughout the year by this December from the current level of around 80,000 barrels.

While the global economic turmoil unleashed by the U.S. subprime mortgage crisis could dampen demand for oil, Ian Craig, chief executive officer of Sakhalin Energy, plays down the risk, pointing out current oil prices are much higher than those in the late 1990s.

Sakhalin-2 got under way in 1994 funded by Royal Dutch/Shell, Mitsui & Co. and Mitsubishi Corp. Its total cost doubled from an initial projection to about $20 billion, or ¥2 trillion.

The scheduled start of LNG shipments to Japan has been delayed from November 2007 due to the increased cost and because Moscow began to insist that it take control of the project.

The three investors in Sakhalin Energy were forced to cede a majority stake to Russia's gas monopoly Gazprom in April 2007.