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Sakhalin-2 LNG steps on the gas in Russia

Russia’s only liquefied natural gas (LNG) export facility will boost output beyond nameplate capacity to meet rising demand in a tight market, plant operator Sakhalin Energy said

Kwok W Wan, LONDON

The Sakhalin-2 LNG plant, in Russia’s far east, has nameplate capacity of 9.6 million tonnes a year (t/y) and mainly supplies Japan. The additional output comes from a recently debottlenecking of the two-train plant.

“Historically it’s been about 5-10% [additional production capacity],” Sakhalin Energy chief executive officer Andrei Galaev said, referring to similar debottlenecking projects. The process has already increased capacity to 10 million t/y and although Galaev did not say what the final increase could be, it is expected to be under 11 million t/y.

He also saw the LNG market remaining tight for the next 30 months because of additional Japanese demand and no significant new volumes scheduled to come on line. As a result, Galaev expects spot LNG prices to stay around $17-20/million British thermal units (Btu) in the short term – double their level before March’s devastating earthquake in Japan

Expansion plans

Sakhalin’s shareholders – Gazprom (50% plus one share), Shell (27.5%), Mitsui (12.5%) and Mitsubishi (10%) – are also considering a plant expansion. It is possible an extra production train, with a similar capacity to the exisiting facility, could be up and running within four years.

“Usually it takes four or five years [to build a plant of this size], but in our case it could be a shorter period because we have infrastructure in place. It’s not a greenfield site,” Galaev told the Oil and Money conference in London. “From a practice point of view, it makes sense to build a copy of what has been built already. For maintenance, for spare part supply, it's much easier to have the same type of train.”

He added that the eventual production capacity would also depend on how much gas supply is available for liquefaction. Shell has been behind the drive to expand Sakhalin LNG production, and could offer Gazprom stakes in some of its overseas assets should the project go ahead. 

Russia’s LNG pipeline

Despite being the world’s largest exporter of pipeline gas, Russia ranks eighth in terms of LNG – although the country has two new projects in the pipeline. Total has agreed to jointly develop the Yamal LNG project in northern Russia last week, following the French major’s decision to take a 12% stake in Russian independent Novatek – the project developer – for $4 billion earlier this year. 

Total will secure a 20% share in Yamal LNG, with Novatek aiming to keep at least 51% and an Indian consortium, led by state-owned Oil and Natural Gas Corporation, also bidding for a stake. The plant will eventually have production capacity of up to 16 million t/y with first gas expected in 2015-17.

Although state-run Gazprom has a monopoly over Russian gas export, analysts at the Oil and Money Conference expected Novatek to secure a gas export licence to Europe.

Total also has a 25% stake in the massive – and much delayed – Shtokman gasfield project on the Barents Sea. The first phase of development is expected produce 23.7 billion cubic metres a year, with around half of this (7.5 million t/y) to be exported as LNG.

The final investment decision is expected by the end of the year, with first gas around 2016, 16 years after the original start date. First LNG is expected in 2017. The other Shtokman stakeholders are Gazprom (51%, operator) and Statoil (25%).

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