Shell wins 3 more Sakhalin LNG sales

New agreements with Japanese utilities give Sakhalin 2 commitments for 75 percent of initial output capacity; BP-led Tangguh LNG project gets $1.4 billion; Conoco plans more Timor drilling this year for big Darwin liquefied natural gas plant

Allen Baker

Petroleum News Contributing Writer

Shell Gas & Power has announced three new deals with Japanese companies for LNG shipments from the Sakhalin 2 project. The agreements give the $12 billion project an outlet for 75 percent of the 9.6 million tonnes of liquefied natural gas that will be produced annually, starting in 2007. Sakhalin 2 will also produce oil.

Shell says it now has eight LNG sales agreements with Japanese utilities, removing many of the potential customers for an undersea pipeline that had earlier been planed for gas from the ExxonMobil-led Sakhalin 1 project.

Shell said June 6 that Toho Gas Co. Ltd. had signed a full sales and purchase agreement for 200,000 tonnes annually for 20 years. Earlier this month, Tohoku Electric Power Co. signed a Heads of Agreement for 420,000 tonnes annually, and in late May Hiroshima Gas Co. Ltd. signed a similar Heads of Agreement for 210,000 tonnes annually. A metric tonne of LNG converts to about 50,000 cubic feet of natural gas, so the Hiroshima deal would yield about 10 billion cubic feet a year.

The Sakhalin project also has long-term sales agreements to supply up to 2 million tonnes annually to Korea and nearly 2 million tonnes annually to Sempra’s Baja California terminal. More than 3.4 million tonnes annually is slated for Japan.

Shell holds 55 percent of Sakhalin 2, with Mitsui & Co. at 25 percent and Mitsubishi Corp. at 20 percent. There have been reports that Russia’s Gazprom will take a stake in the project by trading gas reserves to Shell for a 25 percent stake.

$1.4 billion for Tangguh

The paper said total development cost for the project is now estimated at $6 billion. Proven reserves total more than 14 trillion cubic feet of gas. A unit of Halliburton Co. and JGC Corp. of Japan won $1.8 billion contract in March to build the LNG facilities.

BP, which has a 37 percent stake in the Tangguh field, signed the construction deal after getting lease extensions on the three fields that will supply the LNG plant 1,900 miles east of Jakarta in Papua province. CNOOC has nearly 17 percent of the Tangguh project and various Japanese entities, including Mitsubishi, Sumitomo and Kanematsu, hold the rest.

Up to half of the Tangguh LNG will go to Sempra’s Baja facility, with 2.6 million tonnes set to go to China and about half that slated for Korea.

ConocoPhillips plans Timor drilling

Drilling with partner Santos Ltd. will be at the Caldita prospect near Evans Shoal. Another well is planned at Firebird, near the Bayu-Undan field.

The $1 billion Wickham Point liquefaction plant is expected to go into operation early next year with an initial capacity to ship out 3.5 million tons a year and potential expansion possibilities. Feed gas will come initially from the 57 percent owned Bayu-Undan development, now producing condensate and reinjecting the dry gas.

ConocoPhillips has contracts to supply LNG from Australia to Tokyo Electric Power Co. and Tokyo Gas Co., and has said it may send some of the gas to the Long Beach, Calif., terminal it is planning with Mitsubishi Corp.

Another potential source of additional gas for Wickham Point is the Greater Sunrise field, where Woodside Petroleum (33 percent) is the operator and ConocoPhillips has a 30 percent interest.

But that field is in a murky border area and development has been stalled as Australia and East Timor work out an arrangement on splitting royalties.