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Sakhalin LNG operators to press ahead

Companies behind Sakhalin 1 and Sakhalin 2 developments in Russia's far east to build new production facilities despite tough times for LNG markets

The operators of the Sakhalin 1 and Sakhalin 2 developments in the far east of Russia are both pressing ahead with plans to build new liquefied natural gas production facilities despite low energy prices and mid-term expectations by some of global LNG supply exceeding demand.

Exxon Neftegaz president Stephen Butt last week in Sakhalin capital Yuzhno-Sakhalinsk said that the Sakhalin-1 venture has made fresh advances with its preparations to build a single-train liquefaction project near the De-Kastri oil terminal in the Khabarovsk region.

The partners have decided to increase the ultimate capacity of the liquefaction train to 6.2 million tonnes per annum from the 5 million tpa that had been earlier planned.

Butt said that Exxon Neftegaz continues to be positive about the potential growth in LNG demand in the Asia Pacific region, and sees its own LNG facility as an effective way of monetising significant undeveloped gas reserves at Sakhalin 1.

The operator’s comments came days after Russian government officials suggested that Sakhalin 1 was moving closer to a deal to sell some of its natural gas to the Gazprom-led Sakhalin 2 consortium that already operates a two-train LNG plant in the port of Prigorodnoye in the south of Sakhalin Island.

A source close to the talks was quoted as saying that Exxon Neftegaz could deliver at least 2.3 billion cubic metres per annum of gas to Sakhalin Energy after 2021 under a swap arrangement between Gazprom and Rosneft, which holds 20% in Sakhalin 1.

The potential arrangement is expected to help Sakhalin Energy proceed more comfortably with its long-discussed plan to build a third liquefaction train with capacity of 5.4 million tpa at the LNG plant in Prigorodnoye .

Sakhalin Energy executives last week said that the company has presented detailed technical documentation related to the construction of the new facility for perusal by the country's State Expert Review Board.

Approval from the board is a key element in the bureaucratic Russian approvals procedure for construction of a third train at Prigorodnoye.

Gazprom and Sakhalin 2's minority shareholders, led by Anglo-Dutch supemajor Shell, are expected to arrive at a position where they will be ready during the course of next year to consider taking a final investment decision on the third train, according to a Shell Russia executive.

Reserves at Sakhalin 2’s Lunskoye offshore field, which currently supplies gas for the LNG plant, are not seen as being sufficient on their own to underpin the increase in production that would be required for the third train.

Sakhalin Energy will have to rely on Gazprom developing the Kirinsky offshore block near Sakhalin Island as a key supplier of feedstock gas for train three, in addition to any potential supply from Sakhalin-1 via the proposed swap deal.