Gazprom defers decision on expanding Sakhalin LNG plant in Russia

By ELENA MAZNEVA
Bloomberg

OAO Gazprom put off until at least next year a decision on whether to expand Russia’s only liquefied natural gas (LNG) plant in a project being pushed by its partner Royal Dutch Shell.

Gazprom, the state-run Russian gas exporter, Shell and their Japanese partners need to finish plans for the third unit at the Sakhalin-2 plant before deciding if they will go ahead, Deputy CEO Alexander Medvedev said in Moscow. While the partners agreed a budget, there need to be enough gas resources to justify new capacity, he said.

Shell has been discussing raising capacity 50% since 2013 as it seeks to expand in the growing Asian energy market. It won Russian President Vladimir Putin’s support for the plans in April 2014 amid strains with the US and European Union after Russia’s annexation of Crimea. The decision to proceed may come as soon as August, Energy Minister Alexander Novak said, according to a RIA Novosti report June 3.

Gazprom and Shell are studying raising output to 15 MMtpy from 10 million tons. The Russian exporter, owner of 50% of the project, last year said there were alternatives to expansion, including building Vladivostok LNG, a new plant in Russia’s Far East. That was Gazprom’s preferred option, Medvedev said in March 2014.

It will decide on Vladivostok LNG once the design is ready, Deputy CEO Vitaly Markelov said at a press conference on Tuesday with Medvedev. Shell, owner of 27.5% of Sakhalin-2, argues expanding current capacity is more efficient. Japan’s Mitsubishi Corp. and Mitsui & Co. are also partners in the project on Sakhalin Island, off Russia’s Pacific coast.

In Progress

“The FEED stage is in progress now,” Medvedev said, refering to so-called front-end engineering design. “As a result of this step -- the preliminary stage of which should be completed in the fall and the main one next year -- we should get the answers on all the questions; economic, technological, related to resources.”

Gazprom in 2014 signed a 30-year deal with China to supply gas through a planned $26 billion pipeline from East Siberia. It is in talks on a second pipeline to the world’s biggest energy importer, potentially curbing Chinese demand for more expensive LNG.

A second pipeline contract with China is possible “soon,” Elena Burmistrova, general director of Gazprom’s export division, told journalists Tuesday. Supplies to China through pipelines have the “very realistic” potential to reach 100 billion cubic meters/year, Medvedev said at the conference.

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