$6B Sakhalin LNG contract signed

Allen Baker

Sakhalin Investment Co. Ltd. has signed an agreement to supply 37 million tons of LNG over 20 years to Shell Eastern Trading Ltd. for the North American market, in a deal worth about $6 billion.

The contract, announced Oct. 14, is the first sale of Russian natural gas for North America. The gas will be transported in Sakhalin Energy tankers, starting in early 2008, to the new Sempra Energy LNG terminal planned for Baja California in Mexico. Just two days earlier, Sempra had announced an agreement to buy twice as much gas over the same time period from Indonesia’s Tangguh project, led by BP PLC, for the Baja terminal. The facility, called Energia Costa Azul, is 14 miles north of Ensenada, and is expected to start operations in early 2008.

Under a deal also announced Oct. 14, Shell will have half of the initial capacity at the terminal and an option for half of any capacity additions. Sempra Energy LNG will own, construct and operate the terminal.

The Baja terminal will have an initial capacity of 7.5 million tons a year, which can be turned into a billion cubic feet of natural gas daily. Shell and Sempra announced in December of last year that they would build the terminal under a joint development agreement.Sakhalin Energy is expected to start shipping LNG in late 2007, with production capacity of 9.6 million tons when both planned trains are in operation the following year. So far, Sakhalin Energy has long-term sales agreements for 5 million tons annually, including the recent Shell deal.

Sakhalin Energy is a consortium led by Shell and also including Mitsui & Co. Ltd. and Mitsubishi Corp.