Sakhalin-2 expects lower LNG production in 2015

Roman Kazmin

02-Apr-2015

Sakhalin Energy, the operator of the Sakhalin-2 project in Russia’s Far East, expects that LNG production will drop year on year from 10.8mtpa in 2014 to 10.5mtpa in 2015, according to a corporate newsletter published on 1 April.

“This year, the company plans to produce 35.7m barrels of oil and condensate and produce 10.5mtpa of LNG,” the newsletter said.

This would still represent a rate well above the 9.6mtpa nameplate capacity of the two-train facility’s. The venture earned a total of $5.24bn in 2014 from LNG exports.

Sakhalin-2 is currently producing at 112% of its nameplate capacity, a representative from Sakhalin Energy said during the Russian LNG Congress in Moscow on 1 April.

The project has exported more than 900 cargoes so far and expects to export more than 1,000 by the end of 2015. Sakhalin-2 currently represents about 4.5% of global LNG production capacity and satisfies around 10% of Japan’s current LNG demand. The project has exported volumes to customers in seven countries and 37 ports.

Third train expansion top priority

The expansion of Sakhalin-2’s production capacity through an additional, third train is a top priority for Gazprom, said Viktor Timoshilov, the head of Gazprom’s Eastern Projects Coordination Directorate, during the Russian LNG Congress.

The expansion is the most economically suitable decision for the monetisation of the gas resource base around Sakhalin Island, including the Sakhalin-1 offshore gas development project.

Timoshilov also commented on the ongoing dispute with Russian incumbent oil producer Rosneft, saying that Gazprom has no spare capacity in its pipeline supplying gas to Sakhalin-2 from offshore production. Rosneft lost a lawsuit earlier this year in which the company requested access to pipeline capacity for its Far East LNG project.

Timoshilov also said that Gazprom has offered to purchase volumes from ExxonNeftegaz, the operator of the Sakhalin-1 offshore oil and gas production base, in which Rosneft holds a stake through a subsidiary.

An industry source in Russia told ICIS that the price was a critical issue with the operator of the Sakhalin-1 project asking for levels equivalent to a Japan netback price, while Gazprom envisaged substantially lower level.

As Gazprom and Rosneft are both state-owned companies, the priority should be given to the cheapest method of monetising the expansion of Sakhalin export capacity.

“The cost of monetising gas through the Sakhalin-2 expansion is at least 30% lower compared with building a new export project on Sakhalin Island,” Timoshilov said. Roman Kazmin

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