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Russia’s Gazprom plans to launch third LNG train at Sakhalin-2 in 2021

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screen-shot-2016-09-28-at-11-44-04Russia’s Gazprom plans to launch third LNG train at Sakhalin-2 in 2021

By Katya Golubkova | YUZHNO-SAKHALINSK/PRIGORODNOYE, RUSSIA: Thu Sep 29, 2016 | 2:25am EDT

Gazprom said on Thursday it plans to launch a third liquefied natural gas (LNG) production train at the Sakhalin-2 LNG plant in 2021, possibly fed by a newly drilled field, as Russian companies seek to boost their share of the global LNG market.

Russia accounts for less than 5 percent of the global LNG market but new plants are being built or considered by Novatek, Gazprom and Rosneft.

Located at Prigorodnoye on Sakhalin island, Sakhalin-2, Russia’s sole LNG plant, operates two production lines with a combined capacity of 10 million tonnes of LNG per year. The third train should add another 5 million tonnes.

An obstacle to expanding the plant, operated by Gazprom, Royal Dutch Shell, Japan’s Mitsui and Mitsubishi, is the resource base.

Shareholders are considering two options: buying gas from the Sakhalin-1 project led by ExxonMobil, developing new resources or a combination. Yet, Sakhalin-1, where the state oil firm Rosneft is also a shareholder, is aiming for its own LNG plant.

Vsevolod Cherepanov, a Gazprom board member, said that the first exploitation well at the Yuzhno-Kirinskoye field, viewed as a source of fuel for Sakhalin-2 expansion, aimed to be drilled in 2017, with production to start in test mode in 2021 and in full operation in 2022.

“The plateau of 21 billion cubic meters (bcm) a year is expected to be reached in ten years. We will start from 3 bcm,” Cherepanov said. For the third train to operate, a total of 7-8 bcm of gas per year is needed, he added.

“We also have Kirinskoye field with (expected) 5.5 bcm (a year)… (But) 50 percent of volumes is enough to launch the third train. We will increase volumes a year after that.”

Cherepanov said talks were ongoing with a Chinese company over a drilling platform for Yuzhno-Kirinskoye, but Gazprom may also drill on its own.

In 2015, the United States restricted exports, re-exports and transfers of technology and equipment to the Yuzhno-Kirinskoye field, making it harder to develop.

Gazprom executives have said they will find a way to bring the field on stream. The company said this month it had discovered a new gas deposit in the Sea of Okhotsk near Sakhalin island.

Cherepanov said that based on preliminary information from one well, the field could contain over 40 bcm of gas, yet to be proved, but could not replace Yuzhno-Kirinskoye as a source for Sakhalin-2 expansion.


On Thursday, a LNG tanker could be seen on its way from the facility in Prigorodnoye to Asia-Pacific markets. It takes 2-3 days to reach Japan or South Korea, major LNG consumers.

Olivier Lazare, head of Royal Dutch Shell in Russia, said on Wednesday that shareholders at Sakhalin-2 had agreed on the strategy of marketing LNG from the planned third train. He declined to provide details.

Two sources close to the project said that there were no commercial talks with buyers yet, though one source said shareholders has agreed on general principles for marketing.

The proximity of Asian markets is behind the idea of Sakhalin-1 shareholders to build their own LNG facility, with initial capacity of 5 million tonnes a year and start after 2023.

“In the current pricing environment, it (the LNG project) remains competitive but challenging,” a source close to the planned plant, known as Far East LNG, said.

Asian LNG spot prices are under $6 per mmBtu, down from more than $20 between 2010 and 2014, due to soaring output from Australia and the United States.

Given low prices were putting on hold plans for LNG facilities, there could be a deficit on the market from 2023, according to Mark Gyetvay, chief financial officer with Novatek.

“If we look at Russia increasing its supplies of LNG it is reasonable to assume that Sakhalin LNG can expand their project,” Gyetvay told Reuters this month.

Novatek plans to ship its first LNG cargoes from a new facility in Russia’s Yamal peninsula next year and is considering building its second LNG facility, Arctic LNG-2.

“It’s ironic that nobody raises these types of questions for Australian LNG projects,” Gyetvay said, when asked if the was room for new Russian projects on world markets.

(Reporting by Katya Golubkova; Editing by Ed Davies)


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