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Sakhalin 2 inks two long-term LNG supply deals with Korea, Japan
Shell got some good news in February with two big Asian LNG contracts for the Sakhalin 2 project it leads.
Sakhalin Energy locked up a deal to deliver to Japan more than 26 million tonnes (metric tons) of liquefied natural gas from Sakhalin 2 over a period of 24 years, completing a sales and purchase agreement that followed a Heads of Agreement signed in May 2003. The contract with Tokyo Gas Co. calls for 1.1 million tonnes annually starting late in 2007.
That deal came just two days after Shell announced that Kogas, the Korean gas company, had chosen Sakhalin 2 and another Shell joint venture, Malaysia LNG, as suppliers for up to 4 million tonnes annually for 20 years.
Each project will supply a minimum of about 1.5 million tonnes annually, starting in 2008, with an option for an additional half a million tons. Total’s Yemen LNG will come in with an additional 1.3 million tonnes each year. Final contracts will be signed in the next couple of months.
Korea’s commerce, industry and energy ministry said the deals with the three suppliers amounted to a total of US$20 billion. But it also noted that prices had fallen by 35 to 40 percent in the recent contracts, with the fuel priced at around US$200 per tonne, or in the neighborhood of $4 per million Btu.
Kogas is the world’s largest buyer of LNG, Shell noted, importing more than 21 million tonnes annually. Asian markets already consume 84 million tonnes of LNG per year, and that consumption is expected to grow to 180 million tonnes annually by 2020. Two LNG trains under construction Sakhalin Energy has two LNG trains under construction, each with a capacity of 4.8 million tonnes per year. It now has long-term supply contracts for 7 million tonnes annually. The company announced a 20-year deal in October to ship 37 million tonnes to the Sempra Energy terminal in Baja California. Another Shell entity is the buyer for that gas.
Shell holds 55 percent of Sakhalin Energy, with stakes by Mitsui and Mitsubishi of 25 and 20 percent. The project has reserves estimated at 17 trillion cubic feet of gas, plus more than a billion barrels of oil.
Shell has 15 percent of Malaysia LNG, the largest LNG complex in the world, with Mitsubishi also at 15 percent. Petronas has 65 percent and the state of Sarawak 5 percent.
The long-term agreements lock up some major customers and may affect developments at ExxonMobil-led Sakhalin 1, whose gas originally was supposed to go to Japan via pipeline for utility use. But Japan’s utilities are making long-term LNG deals, and so the pipeline may go elsewhere, perhaps China, or that project could shift its focus to LNG to market its huge gas reserves.
—Allen Baker
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