Sakhalin II: New LNG supply deal with Chubu Electric

Yuzhno-Sakhalinsk, Russian Federation, 12 July 2006: Today Sakhalin Energy, operator of the Sakhalin II Project, has signed a new Heads of Agreement (HoA) for the sale and purchase of liquefied natural gas (LNG) with Japan’s Chubu Electric Power Co., Inc.



The Chubu Electric HoA calls for the supply of approximately 0.5 million tonnes per annum (mtpa) of LNG for a period of 15 years, with deliveries to commence in April 2011. Sakhalin Energy and Chubu Electric will now continue discussions to finalise a full Sales and Purchase Agreement.


The signing of today’s agreement further enhances Sakhalin’s role as a new strategic supplier of natural gas for Japan, and confirms the wider Asia Pacific Region as a major new market for Russian gas supplies.


Sakhalin Energy’s Commercial Director Ate Visser, who signed the agreement on behalf of the Company, said: “We are pleased to have reached a deal with Chubu Electric for the supply of Sakhalin II LNG and we are looking forward to building a long-term relationship with the company. The signing of this HOA with Chubu Electric further demonstrates Sakhalin II LNG’s competitive advantage in the Japanese market due to our close proximity. It also indicates that, given we are still approximately two years away from the start of LNG exports, there is a strong customer desire to receive supplies from this pioneering project that is helping to establish a new energy province on Sakhalin.”



The LNG will be supplied from Sakhalin Energy’s 9.6 mtpa LNG plant, being built as part of the enormous Sakhalin II Phase 2 project at Prigorodnoye at Aniva Bay on the southern tip of Sakhalin. The plant will have two gas liquefaction process trains, each with a capacity of 4.8 mtpa. Overall design, procurement and construction work of the Phase 2 project is about 75% complete.


Notes for editors

Sakhalin Energy Investment Company Ltd. is an incorporated company, established in April 1994 and based in Yuzhno-Sakhalinsk, Russia for the purpose of the implementation of and development of the Sakhalin II integrated oil and gas project. The shareholders in Sakhalin Energy are: Shell Sakhalin Holdings B.V. with 55 % interest (parent company – Royal Dutch Shell plc), Mitsui Sakhalin Holdings B.V. with 25% (parent company – Mitsui & Co., Ltd.) and Diamond Gas Sakhalin B.V. with 20 % (parent company – Mitsubishi Corporation).



The Sakhalin II development represents one of the largest integrated oil and gas projects in the world. Phase 1 has been producing oil from the Vityaz Complex offshore Sakhalin since July 1999. The Vityaz Complex consists of the Molikpaq production platform, a single anchor leg mooring buoy and the Okha floating storage and offloading unit, and is located on the Astokh feature of the PA reservoir offshore Sakhalin. The Molikpaq is the first offshore oil production platform in the Russian Federation.



Production is currently limited to the ice-free period during the summer months. Cumulative production since first oil is over 70 million barrels. Sakhalin Energy has sold its crude oil to customers in seven markets, new for Russia - Japan, Korea, China, Taiwan, the Philippines, Thailand and the USA.



Phase 2 of the Project is thought to be the biggest single integrated oil and gas project ever undertaken. It entails the further development of the PA field – an oil reservoir with associated gas – and the development of the Lunskoye field – a gas reservoir with associated condensate. The project calls for the construction of two new production platforms – one on the PA field and one on the Lunskoye field. Concrete gravity base structures (CGBS) of the new platforms were successfully built in Vostochny, in the Russian Far East, and installed at the fields in the summer 2005. In June 2006 the Topsides for the Lunskoye platform were masterly installed on top of its CGBS. The Topsides for the PA-B platform will be installed in 2007.



An onshore processing facility is being built in the north of the Island to separate gas and condensate from the Lunskoye field. Onshore pipelines will transport the oil and gas more than 800 km to an oil export terminal and Russia’s first LNG plant at Prigorodnoye on the southern end of Sakhalin Island, which remains largely ice-free year round. The two-train LNG plant will have a capacity of 9.6 million tones per annum. Although the plant is still under construction, most of the future LNG capacity is already sold under long-term contracts. The company anticipates signing binding Heads of Agreements for the remaining gas in the near future.



The Phase 2 Project will also enable year-round production from the Molikpaq

platform.



The Phase 2 Project is currently about 75% complete, including design, procurement of materials, equipment and actual construction.

Contact Information

Jonathan Charles

(Gas and Power)

Royal Dutch Shell plc

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