First gas contract for Sakhalin project

The Royal Dutch/Shell Group of Companies said May 12 that the first gas contract has been signed for the Sakhalin project. The agreement — between Sakhalin Energy and Tokyo Gas — is a 24-year contract for supply of liquefied natural gas to Japan, Shell said May 12.

Shell said the "heads of agreement" is for supply of up to 1.1 million tonnes a year of LNG, with first deliveries expected in 2007; a "fully termed sale and purchase agreement" is being negotiated with signing planned for 2004.

The agreement which has been signed is subject to Sakhalin Energy's shareholders taking a final investment decision, Shell said. The company said the agreement "represents another significant step towards the development of the approximately $10 billion Sakhalin-II, Phase 2 integrated oil and gas project." The shareholders in the venture — Shell, Mitsui and Mitsubishi — are expected to take a final investment decision in the first half of this year.

The Sakhalin-II Production Sharing Agreement is operated by Sakhalin Energy Investment Co. (Shell 55 percent, Mitsui 25 percent, Mitsubishi 20 percent). Phase 1, in operation since 1999, produces oil from an offshore platform during the ice-free season and exported 10.77 million barrels of oil in 2002. Phase 2 of the project will involve the construction of two new platforms, oil and gas pipelines and processing facilities including an LNG plant with a planned capacity of 9.6 million tons per year. Shell said the LNG sales are primarily targeted at traditional buyers in Japan, Korea, Taiwan and emerging markets in Asia Pacific.