Rosneft CEO says Sakhalin-1 to build its own LNG plant

9/6/2019

Shareholders in the Sakhalin-1 oil and gas project in Russia’s far east have decided to build their own liquefied natural gas (LNG) plant in the Pacific port of De Kastri, which could supply the super-cooled gas to Japan, Rosneft’s chief executive said.

The four companies - Rosneft, Exxon, Japan’s SODECO and India’s ONGC Videsh - are partners in the Sakhalin-1 group of fields. The partners were considering whether to build their own LNG plant or to sell gas to Gazprom.

Gazprom, Russia’s top gas company, leads another project on the Pacific island of Sakhalin, Sakhalin-2, and is planning to expand its production capacity from the current 10 million tons of LNG per year.

Gazprom was in talks with the Sakhalin-1 shareholders about buying gas from that project for the Sakhalin-2 expansion but the parties have so far failed to agree on the selling price.

Sources told Reuters last year that Sakhalin-1 planned to build its own LNG plant at the De Kastri port in Russia’s Khabarovsk region, where Rosneft already has an export terminal for Sakhalin-1 oil.

“This year, shareholders made a decision to build our own LNG plant in De Kastri with a capacity of 6.2 million tons (per year),” Rosneft Chief Executive Igor Sechin said in a statement on Thursday.

“Its products will be much in demand in Japan due to the geographical proximity of the two countries.”

Russia has two large-scale LNG plants so far, Sakhalin-2 and Novatek’s Yamal LNG. Novatek, Russia’s top private gas producer, plans to launch another one, Arctic LNG-2, in 2023. Japan has stakes in both Sakhalin-2 and Arctic LNG-2 projects.

Sechin, whose Rosneft has long sought to build its own LNG plant, did not provide timing or costs of the project in the statement on Thursday.

Sources told Reuters last year that the De Kastri option for the LNG plant would allow the costs to be spread among Sakhalin-1 stakeholders and the broader involvement of participants may mitigate sanctions risk.

Sakhalin-1 is led by Exxon with a 30% stake while Rosneft owns 20% with the rest split between SODECO (30%) and ONGC Videsh (20%).

Reporting by Vladimir Soldatkin, Olesya Astakhova and Gabrielle Tétrault-Farber; Writing by Katya Golubkova; editing by Emelia Sithole-Matarise