17 Jun 2010 13:14

Mitsui may boost Sakhalin-2 LNG capacity

MOSCOW. June 17 (Interfax) - Japanese Mitsui is interested in boosting the capacity of the Sakhalin-2 project's liquefied natural gas (LNG) plant, the chairman of Mitsui & Co. Moscow LLC, Noriaki Sakamoto told Gazprom's inhouse journal in an interview.

"Mitsui is definitely interested in increasing the plant's capacity by roughly one-third by adding a third LNG production line," said Sakamoto, who is also an executive officer of Mitsui & Co. Ltd.

Japan currently consumes about 70 million tonnes of LNG a year, including 6 million tonnes from the Sakhalin-2 plant (about 8% of the total). "You can see that the figure is not the largest. Therefore there are good prospects for expanding the presence of Sakhalin gas on the Japanese market. Although our nation's energy consumption is unlikely to rise substantially, Japan will remain a major LNG market," he said.

"We also believe that Japan will rely on LNG imports because of certain difficulties connected with construction of new nuclear power plants, and due to rising demand for so-called clean energy. Moreover, demand for LNG will rise in China, India, perhaps Taiwan, other countries in the Asia-Pacific region. In short, there is not doubt that Sakhalin gas will be in demand in future," Sakamoto said.

Commenting on the outlook for natural gas deliveries from Sakhalin to Hokkaido via pipeline, Sakamoto said such a project would be "very problematic." Japan has extensive networks for accepting LNG, including 27 terminals located on the four main islands: Hokkaido, Honshu, Kyushu and Shikoku. However, gas transportation infrastructure is weak, and construction of new gas pipelines would entail payment of substantial compensation to landowners, he said.

The LNG plant, located at the southern tip of Sakhalin, has capacity to produce 9.6 million tonnes of LNG a year. The plant began operating in February 2009. The bulk of the gas that Sakhalin-2 will produce over 25 years has already been bought up by Japan (over 60%), the U.S. and South Korea. Project operator Sakhalin Energy may raise output from the plant to design capacity in 2010. Construction of a third line at the plant is under discussion.

Gazprom has 50% plus one share in Sakhalin Energy, Royal Dutch Shell has 27.5% minus one, Mitsui has 12.5% and Mitsubishi - 10%.

Sakhalin-2 involves the development of the Piltun-Astokhskoye and Lunskoye fields. Reserves in place amount to 530.8 million tonnes of oil (including 118.6 million tonnes of recoverable reserves), 75.3 million tonnes of condensate (50.1 million tonnes) and 634.4 billion cubic meters of gas. The project costs total about $20 billion.