RUSSIA - Focus On Asia.

In 2002 the Kremlin appointed Gazprom as co-ordinator of east Siberian gas E&P and export projects. By implication, apparently, this includes the Sakhalin island and its offshore gas E&P and export projects, as Gazprom has been trying to get into some of these ventures. But to the Kremlin, the focus on Asia is of geo-strategic importance. Asian demand for LNG is forecast to rise from 87m t/y in 2005 to 116m t/y by 2010 and 138m t/y by 2015 (see News Service of this week's APS Diplomat).

Ventures off Sakhalin island will be producing oil and gas in partnership with foreign companies, with a Shell-led Sakhalin venture already exporting oil. Most of the gas would be sold to Japan, by pipeline and in LNG form. The huge gas reserves of Irkutsk and Yakutia (Sakha republic) are to be developed for their closest non-FSU markets: China, Korea and Japan, to be supplied by pipeline.

Sakhalin Island, a former penal colony located off Russia's eastern shore, is home to five oil and gas projects, each operated by a unique international consortium. The five projects are currently in different stages of development for Asian markets.

The Sakhalin-I project is led by ExxonMobil in partnership with Sodeco of Japan, ONGC Videsh of India, Sakhalinmorneftegaz, and RN Astra. The consortium members started drilling in May 2003 and expect preliminary oil production of 250,000 b/d in 2005. The oil will be piped to the Russian port of De-Kastri and pumped into the Russian system. But Sakhalin-I's gas, to be on stream in 2005, awaits a market as ExxonMobil has failed to secure Japan via a proposed pipeline. Sakhalin-I will supply 4.5 BCM/y to the Khabarovsk region from the Chaivo, with the first consignment to be sent in time for the winter heating season of 2005-06. Supplies will last till 2009.

Sakhalin-I, on the island's north-eastern shelf, is to develop Chaivo, Odoptu and Arkutun-Dagi oil and gas fields, whose combined reserves are 310m tons of oil and 485 BCM of gas (see background in Vol. 59, No. 12).

Sakhalin-II (Sakhalin Energy) is led by Shell in partnership with Mitsui and Mitsubishi, and entails Russia's first LNG facility, to be built on the southern tip of the island, near the town of Prigorodnoye. Construction of the two-train plant, 9.6m t/y, began in spring 2003, and Shell expects that initial production could begin in 2005 with exports scheduled to start in 2007.

The Sakhalin II partners have already secured sales contracts with five Japanese utilities worth 3.9m t/y, for about 20-22 years. The most recent of these contracts was announced in March 2004, for 300,000 t/y to Toho Gas between 2010 and 2033. Shell-Sempra Energy is to take another volume of LNG to a re-gasification terminal to be built at Ensenada, Mexico, with the gas to be marketed in Mexico and California. Sinopec of China is expected to make an offer to buy LNG and a stake in Sakhalin-II.

The state-run Korea Gas Corp. (Kogas), South Korea's monopoly gas provider, on Aug. 20 invited companies to submit bids for at least two 20-y contracts for 2-3m t/y of LNG each from 2008. The total amount involved would be up to $25 bn. With South Korea's energy needs expected to double over the next 15 years. Kogas has forecast that demand for LNG will rise 15% this year to 21.3m tons.

Kogas, the world's biggest buyer of LNG, in 2003 imported about 19.4m tons under contracts with Australia, Brunei, Indonesia, Malaysia, Oman and Qatar. Tokyo Electric, the world's largest private utility, in 2003 imported 19.1m tons of LNG to Japan. All existing LNG suppliers to South Korea have been contacted, as well as new suppliers like Sakhalin-II. Andy Calitz, commercial director for Sakhalin Energy said he would promote Sakhalin-11, three days by ship from South Korea, as the country's closest and most reliable source of LNG. The deadline for bids is mid-September. The Aug. 20 tender marks the first time Kogas has awarded an LNG contract through open bidding.

Rusia Petroleum (a TNK-BP-led consortium), Kogas, and the China National Petroleum Corp (CNPC) have recently announced plans to have a pipeline built to connect Russia's east Siberian gas field Kovykta to China's north-eastern provinces and across the Yellow Sea to South Korea. This calls for a 1,200 MCF/y line which would deliver roughly two-thirds of its gas annually to China. The rest will go to South Korea and smaller quantities will taken by the domestic market en route. The pipeline could be on stream in 2008.