BLOOMBERG: Shell May Expand Russian LNG Plant as Asian Sales Accumulate (ShellNews.net) 3 June 05

June 3 (Bloomberg) -- Royal Dutch/Shell Group may expand its liquefied natural gas project in Sakhalin Island as demand for the fuel rises in Asia, allowing Russia to compete with Indonesia, the world's biggest exporter of the fuel.

Sakhalin Energy Investment Co., led by Shell, is building a 9.6 million metric ton-a-year plant on Russia's Pacific Coast. It has sales contracts for about 7.1 million metric tons a year and plans to sign up the rest by year-end, said Viktor Snegir, commercial general manager at the venture.

Increased Russian supply will help to meet growing demand in Japan and South Korea, the world's two biggest buyers, and China, which may need 30 million tons a year by 2010. Demand for LNG -- gas cooled to a liquid for transport on ships -- is surging as utilities switch to cleaner-burning gas.

``The Asian LNG market will experience a super-tight situation from 2008 for at least three years because of a lack of available supply,'' said Park Jae Young, an LNG buyer at Korea Gas Corp., the world's largest buyer of the fuel.

Shell owns 55 percent of Sakhalin Energy, Japan's Mitsui & Co. holds 25 percent and Mitsubishi Corp. owns 20 percent. The partners plan to invest $12 billion to pump oil in Sakhalin and complete construction of Russian's first LNG plant in 2007.

``There are all the reasons to expand,'' Snegir said in an interview yesterday in Paris. ``Judging the market demand and judging the situation where several different companies are potentially interested in buying gas from Sakhalin, I think, that'' the project expansion will proceed.

Rising Demand

Japan is the world's largest LNG importer, accounting for about half of the 123 million tons traded in 2003. Demand for LNG in South Korea may rise at least 42 percent to more than 30 million tons a year by 2017, Kim Myeong Nam, a director of Korea Gas's international projects office, said in March.

India, which started importing LNG last year, may increase consumption to 10 million tons by 2007, Suresh Mathur, managing director, Petronet India Ltd., India's first LNG importer, said on Feb. 9. China, which will receive its first shipments next year, may consume 30 million tons a year by 2010, Fu Chengyu, chairman and chief executive officer of CNOOC Ltd. said in Hong Kong on May 25.

``New demand is also expected from Thailand and Singapore, let alone China and India,'' Korea Gas's Park said.

U.S. imports may rise to 40 million tons by 2010, according to John Banner, president of the LNG marketing arm at Australia's North West Shelf venture. The U.S. imported 13.7 million tons in 2004, according to the Department of Energy's Web site.

Gazprom

OAO Gazprom, Russia's natural gas monopoly, is seeking a 25 percent stake in the Sakhalin Energy venture to accelerate plans to join the LNG market and supply the U.S., the world's largest energy consumer.

``Russia is a new player in the market,'' Snegir said. ``Russia is competing now'' with Indonesia and Qatar.

Sakhalin Energy won orders to replace some Indonesian deliveries to Japan as companies such as Tokyo Gas Co., Tokyo Electric Power Co., Asia's biggest power producer, and Tohoku Electric Power Co. seek to diversify supplies.

The Shell unit has signed long-term agreements this year to supply 3.23 million tons a year, raising its orders by 83 percent.

Tohoku Electric, Japan's fourth-largest power company, has a five-year contract ending in 2009 for 830,000 tons a year from Indonesia's PT Arun NGL. Tohoku Electric this week agreed with Sakhalin Energy to buy as much as 420,000 tons a year of the fuel over 20 years starting from 2010.

Bontang

Sakhalin Energy also this week agreed to supply 210,000 tons of LNG a year over 20 years to Hiroshima Gas Co., which now relies on the PT Badak NGL project at Bontang in Indonesia's East Kalimantan province as its sole supplier of the fuel. Hiroshima Gas serves more than 426,000 customers in Japan's Honshu Island.

Sakhalin Energy also has contracts to sell the fuel to Japan's Toho Gas Co. and Kyushu Electric Power Co., to Korea Gas Corp. and to the Energia Costa Azul LNG terminal, which will be built on Mexico's Pacific Coast.

To contact the reporter on this story:

Eduard Gismatullin in London at egismatullin@bloomberg.net

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