Sakhalin II LNG project faces delay to 2008 start

Tuesday, 18 December 2007

Russian natural gas monopoly Gazprom bought a 50 percent stake plus one share in the so-called Sakhalin II LNG project for $7.45 billion in late 2006 under controversial circumstances.

This followed pressures on the original shareholders Royal Dutch Shell and Japan’s Mitsui & Co. and Mitsubishi Corp. from the Russian authorities on environmental issues, but who were effectively pushing for Gazprom’s entry to the project.

Shell, Mitsui and Mitsubishi are now left with 27.5 percent, 12.5 percent and 10 percent of the operating company.

The Gazprom-led consortium has now warned that it would delay first exports to customers by about three months.

This could cause a further squeeze in the LNG market next year and higher prices, analysts said.

The LNG plant has two liquefaction trains, each with a capacity of 4.8 MTPA, and was originally expected to begin delivering to customers in mid-2008.

The LNG has been bought under contracts of up to 25 years by Japanese, US and South Korean companies.

The delay has arisen because of a slowdown in construction work and there could be a further pushback if there are difficult weather conditions in the next couple of months, officials said.