First Russian LNG cargo starts its journey to Japan

The first Russian LNG cargo for delivery to Japan has been successfully loaded from the Sakhalin II LNG plant into the Energy Frontier LNG carrier. The Energy Frontier left the Prigorodnoye port on 29 March for the Sodegaura terminal in Tokyo Bay, with a cargo of some 145 thousand cubic metres of LNG intended for two of the Company’s foundation customers - Tokyo Gas and Tokyo Electric. The LNG was loaded through the 805-metre long jetty at the Prigorodnoye port, which was purpose built for the year-round export of liquefied natural gas (LNG) and oil.

“This is a key milestone, the culmination of many years of effort by the Russian federation, the Sakhalin Oblast, our shareholders and the thousands of Company and contractor staff who made it all possible,” said Sakhalin Energy’s CEO Ian Craig. “Russia has marked its entry into the Asia Pacific LNG market and Japan has a new long term energy partner.”

With the start of LNG production and off-loading and year-round oil deliveries, which began in December 2008, a new major Asian energy source is now on stream. Today Sakhalin LNG is produced at train 1 with train 2 scheduled to come on stream later this year. This year and 2010 will see a gradual ramp-up to full production capacity. The newly built Sakhalin II infrastructure includes three offshore platforms, an onshore processing facility, 300 km of offshore pipelines and 1,600 kilometres of onshore pipelines, an oil export facility and the LNG plant.

Practically all of the 9.6 million tonnes of annual production capacity of the LNG trains 1 and 2 has already been committed in long-term contracts to supply customers in Japan, Korea and other markets. Sakhalin LNG is the first Russian gas supplied to these regions and the establishment of the new export route confirms the country’s status of a global energy power.

With the start of LNG production from Sakhalin II, Shell now has interests in LNG operations in six countries, covering both the Atlantic and Pacific basins. The Sakhalin II LNG plant has been designed using Shell’s innovative liquefaction technology taking maximum advantage of the outside ambient temperature, resulting in high efficiency and low CO2 emissions. Sakhalin II increases Shell’s global LNG production capacity by almost 17% and reinforces our leadership position in LNG among international oil companies. In addition, the access we have to LNG volumes from Sakhalin II enhances our global LNG marketing capability.
Notes for Editors

Sakhalin Energy
Sakhalin Energy Investment Company Ltd. (Sakhalin Energy) was set up in 1994 for implementation of the Sakhalin II Project. The shareholders of the Company include Gazprom (50% + 1 share), Royal Dutch Shell (27.5% - 1 share), Mitsui & Co. Ltd. (12.5%) and Mitsubishi Corporation (10%).
The head office of Sakhalin Energy is in Yuzhno-Sakhalinsk.

Liquefied Natural Gas
To convert the natural gas to a liquid, it is cooled to approximately -160 °C. Liquefied natural gas (LNG) is a colourless odourless liquid, less than half the density of water. The process of liquefying natural gas reduces its volume by 600 times. It remains in a liquid state under normal atmospheric conditions, and is transported by sea in specially designed LNG carriers.
Natural gas has the least environmental impact of all the fossil fuels and the global demand for it is steadily increasing. Transporting gas in the form of LNG provides the flexibility of supply to accommodate any number of LNG buyers in different countries.

LNG Plant
Russia’s first LNG plant on Sakhalin Island was inaugurated on 18th February 2009. It features two production trains, each with an annual capacity of 4.8 million tonnes. Once the plant has reached its design capacity of 9.6 million tonnes, expected in 2010, the highly automated facility will continue to be operated by only 300 personnel.
The construction of this world-class facility commenced in August 2003, with around 10,000 people employed on site at the peak of construction activities. Construction workers and specialists came from over 40 countries. The LNG plant on Sakhalin uses a specially adapted technology of double mixed refrigerant, which enhances the plant’s efficiency by taking advantage of Sakhalin’s cold climate.
The LNG plant output was contracted under long-term contracts (some 20 and more years) before the end of construction. Approximately 65% of all Sakhalin LNG will be exported to nine buyers in Japan, the world’s largest LNG market. The remaining volume (in approximately an equal split) will go to South Korea and other markets. This will establish Russia as a new player in Asian Pacific energy markets and will serve to strengthen the bilateral economic and trade relations between Russia and the Asia Pacific. It creates opportunities for countries in that region to diversify their gas supplies and lower their dependency on exports from other sources. The share of Sakhalin gas in the LNG consumption of Japan, in particular, will approach 8%.

Sakhalin II Project
The first LNG plant in Russia was built as part of Sakhalin II, one of the largest integrated projects in the world. The Sakhalin II Project is developing two oil and gas fields (Piltun-Astokhskoye and Lunskoye) offshore north-east Sakhalin for production and export of crude oil and liquefied natural gas (LNG).
The Sakhalin II Project introduced the Russian Federation to a range of innovative technologies, from LNG production to offshore development of hydrocarbon fields. The project, which brought together Russian and International expertise to overcome the formidable challenges, provides a potential model for similar collaboration in unlocking much needed reserves in Arctic regions.