Lloyds List: $6bn deal will bring Russian gas to America: “A pioneering $6bn liquefied natural gas supply deal has been signed between Sakhalin Energy Investment and Shell which will see Russian natural gas make its debut in North American markets.” (ShellNews.net)

Tony Gray

Posted Oct 16, 2004

A pioneering $6bn liquefied natural gas supply deal has been signed between Sakhalin Energy Investment and Shell which will see Russian natural gas make its debut in North American markets.

Singapore-based Shell Eastern Trading is taking 37m tonnes of LNG over a 20-year period to supply the Energia Costa Azul plant that will be constructed in Baja California, Mexico.

Shell is taking 50% of the regasification terminal's capacity.

The Sakhalin Energy agreement calls for significantly higher volumes of LNG deliveries during the first three years, with a plateau supply of 1.6m tonnes a year (about 0.2bn cu ft a day).

First deliveries are expected in early 2008, with Sakhalin Energy responsible for providing the LNG carriers.

Sakhalin Energy said it was evaluating tenders for the long-term supply of three LNG carriers with options for additional ships.

The results of the tender are expected to be announced shortly.

Shell said additional shipping required for delivery of the peak volumes in the early years of the contract will be chartered.

Shell-led Sakhalin Energy already has one 147,200 cu m vessel lined up for long-term charter from Russian state-owned shipping group Sovcomflot and its Japanese partner Nippon Yusen Kabushiki Kaisha.

Japan's Mitsubishi Heavy Industry is building the vessel. Shell said the deal reflected the group's commitment to bringing LNG into Mexico, initially through its Altamira terminal on the Gulf coast and then Baja California.

Catherine Tanna, director of Shell Gas ' Power, Americas and Africa, said excess natural gas would be marketed in the US by the group's affiliate Coral Energy.

The sale and purchase agreement with Shell brings Sakhalin Energy's total long-term sales to 5m tonnes a year.

'Sakhalin Energy remains in discussion with both its existing and other potential customers in Japan, Korea and China and is confident of further progress over coming months.'

Sakhalin Energy's first LNG production is expected in late 2007.

Total production capacity will be 9.6m tonnes a year when both of its first two trains are in operation in 2008.

There is already speculation about demand being sufficient for a third train.

Shell has a 55% stake in Sakhalin Energy with Japan's Mitsui and Co holding 25% and Mitsubishi Corp 20%.

Meanwhile, Shell International Gas has signed a 20-year deal that provides the oil major with half of the initial capacity of the Energia Costa Azul regasification terminal.

The agreement with Sempra Energy LNG also gives Shell rights to half of any capacity additions as the project expands in the future.  Sempra Energy will own, construct and operate the terminal, which initially will have a capacity of 1bn cu ft per day (7.5m tonnes a year).

Earlier this week, Sempra Energy announced an agreement with BP and its Tangguh LNG partners for the supply of 3.7m tonnes of LNG a year, from Indonesia to Energia Costa Azul.

Sempra Energy's president and chief operating officer Donald Felsinger commented: 'We jointly determined that the consolidation of the ownership, construction and operation of the project and Shell's capacity agreement represented a mutually beneficial commercial arrangement for both companies.'