Russ Oil-Gas

December 17, 2007 - REUTERS by Dmitry Zhdannikov and Damon Evans – MOSCOW/SINGAPORE – Sakhalin Energy, one of the world's top liquefied natural gas projects, warned on Monday it will delay first exports to customers in Asia and the United States by at least a few months. Industry sources said the delay, which arose from slow construction work, could be extended to half a year to spring 2009 creating bullish pressures on the LNG market in Asia where customers face peak demand in the winter period. “We aim to complete the main construction and commence LNG plant start-up at the end of 2008. LNG exports are expected to start shortly thereafter,” a Sakhalin Energy spokesman said. The group, which has signed up customers for almost all of its production volumes, had previously pledged to start exports in the third quarter of 2008. Sakhalin Energy, which is led by Russian gas export monopoly Gazprom and involves Royal Dutch Shell, Mitsui and Mitsubishi, said it was talking to customers but declined to comment on whether it would have to pay fines for delays and if it was seeking bridging supplies. The development confirms expectations by many analysts that a prolonged battle between Shell and the Kremlin for control over the project last year would lead to delays. The shares of Shell and Gazprom were unaffected by the news on Monday and performed in line with market peers and broader indexes. Sakhalin Energy has sold over 90 percent of the planned 9.6 million tons per year LNG production under long-term contracts, with 60 percent going to Japan and the rest supplied to South Korea as well as to North America's West Coast. The biggest customers include Tokyo Gas, Tokyo Electric and Korea Gas. The $22-billion project had long been led by Shell but the company agreed to sell control in the project to Gazprom last year after Russia's environmental watchdog agency threatened to strip it of production licences for breaking ecological rules. Analysts broadly interpreted the threat as a Kremlin reaction to Shell's decision to massively increase spending on the project, without seeking permission from the authorities, and Shell's move to delay the first LNG shipments from 2007.
LNG DELAYS FOLLOW OIL
In September, Sakhalin Energy said it would delay year-round exports of its highly-sought light crude to 2008 from the end of 2007 citing delays in pipeline commissioning as the main reason. But had not changed the LNG timetable. Industry sources said on Monday the pipelines was still the biggest problem as they run 800 km (497 miles) in parallel down the length of the island to the LNG plant, crossing thousands of small and big rivers. “Mechanically the plant is nearly there as Daewoo are 70 percent complete on train two, but commissioning cannot happen yet,” said a contractor at the project. “Cryogenic insulation will not be finished until September 2008, but that does not include the valves,” said another source. Cryogenic insulation is wrapped around the pipes to ensure the super-cooled gas remains at the correct temperature. Insulation is usually the last application to be completed at an LNG plant before commissioning takes place. “If there is any slippage in the construction schedule then we will easily see start-up delayed till spring 2009, as once winter sets in productivity at site is extremely low,” said the contractor.