Russiaâs Sakhalin 2 project
May 15 2003 - 11:03AM
UK Regulatory
Russia's Sakhalin 2 project to go ahead
Sakhalin Energy Investment Company (Sakhalin Energy), a 55 per cent Royal Dutch
/Shell Group Company, today received support from all its shareholders to
launch the second phase of the Sakhalin II project in the far east of Russia.
The other shareholders in Sakhalin Energy are Mitsui Sakhalin Holdings BV
(parent company: Mitsui and Co Ltd) 25 per cent and Diamond Gas Sakhalin BV
(parent company: Mitsubishi Corporation) 20 per cent.
The joint venture formally declared its positive investment decision following
unanimous approval of its development proposal by its shareholders and the
project's Supervisory Board, consisting of representatives of the company and
the Russian Federation.
The Sakhalin II development represents the largest single foreign direct
investment project in Russia, requiring an investment of approximately $10
billion. Phase 1 of the project has been successfully producing oil from the
Vityaz Complex since July 1999, exporting over 10 million barrels of oil in
2002. Today's decision to commit to Phase 2 underpins what is thought to be the
biggest single integrated oil and gas project ever undertaken. It also includes
the construction of a liquefied natural gas (LNG) plant with a capacity of 9.6
million tonnes per annum (mtpa). This plant will use Shell's proven Liquefied
Natural Gas (LNG) technology and reinforce Shell's position as the world's
leader in the LNG business.
Sakhalin II Phase 2 involves the further development of the Piltun-Astokhskoye
field - an oil reservoir with associated gas - and the development of the
Lunskoye field - a gas reservoir with associated condensate.
Key features of the project include:
World-scale The two fields comprise world-class reserves of
reserves approximately 1.2 billion barrels (160 million tonnes) of
crude oil and 500 billion cubic metres (17 trillion cubic
feet) of natural gas.
World's largest The project includes two new offshore platforms, a gas
integrated oil and condensate processing plant in the North of Sakhalin Island
gas development and two 850 km pipelines. The centrepiece of the project is
a state-of-the-art LNG plant, comprising two trains each of
4.8 mtpa, located close to an oil and LNG export terminal
in the ice-free south of the island. The first LNG cargo is
planned for the second half of 2007. Year round oil
production is expected in 2006.
Gas sales The project is ideally placed to provide a new source of
LNG for traditional buyers in Japan, Korea, Taiwan, China
and the west coast of North and Central America. Sakhalin
Energy has already signed an agreement with Tokyo Gas for
the supply of 1.1 mtpa of LNG over 24 years and is in
advance negotiations with other Japanese customers to
commit the remaining volumes for the first LNG train.
Construction Contracts for the Phase 2 construction and service work
contracts will be awarded in the coming weeks, including in the
region of $4 billion of contracts to be awarded to Russian
contractors. The project includes approximately $300
million of upgrades to Sakhalin's infrastructure - roads,
bridges, airports, railways and ports. The final approval
stages of the design and construction documentation
(TEO-C), including a substantial environmental impact
assessment, are progressing in line with plans to obtain
construction approvals in the next few months.
Benefits for Russia Phase 2 of the project is expected to generate value of
more than $45 billion for the Russian state. Sakhalin
Energy expects 70% of the project to be "Russian Content" -
Russian businesses, materials and contracts - over the
project's life. It is estimated that the project will
generate 110,000 man-years of employment for Russian
nationals during the project life.
All figures quoted are 100% project basis.
Contact Investor Relations:
UK: Simon Henry +44 20 7934 3855 or Gerard Paulides +44 20 7934 6287
Europe: Bart Van der Steenstraten +31 70 377 3996
USA: David Sexton +1 212 218 3112
This document contains forward-looking statements that are subject to risk
factors associated with the oil, gas, power, chemicals and renewables
businesses. It is believed that the expectations reflected in these statements
are reasonable, but may be affected by a variety of variables which could cause
actual results or trends to differ materially, including, but not limited to:
price fluctuations, actual demand, currency fluctuations, drilling and
production results, reserve estimates, loss of market, industry competition,
environmental risks, physical risks, legislative, fiscal and regulatory
developments, economic and financial market conditions in various countries and
regions, political risks, project delay or advancement, approvals and cost
estimates.
END