By James Brooke

19-08-04

Russian LNG would be shipped across the Pacific to help power California, under a contract that is in "very, very advanced" negotiations, according to a corporate executive on Sakhalin, the island that is Russia's new energy production centre in the Pacific.

The gas would go to a terminal in northern Mexico from a plant on Sakhalin that is to open in 2007, becoming Russia's first plant to chill natural gas for shipping, according to Andy Calitz, commercial director of Sakhalin Energy Investment, a production consortium led by Shell.

Although occasional tankers of oil have crossed the Pacific this summer, sailing from Sakhalin to Hawaii and Alaska, the new deal would give a big lift to faltering efforts by Russia and the United States to cooperate on energy.

"We are prepared to ship gas and oil directly to the United States," Alexander Losyukov, Russia's ambassador to Japan, said, alluding to the gas contract, which received official Russian approval last July. "We wantto be a reliable supplier, probably more reliable than the Middle East."

The buyer, a Shell-Sempra Energy joint venture, is expected to give final approval to the contract in September. By December, this group expects to break ground on a $ 600 mm regasification plant in Mexico.

The plant in Ensenada, about 130 km or 80 miles south of San Diego, would turn superchilled liquid into gas to be moved by pipeline to other locations in Mexico and to Southern California. The plant is to be ready in 2007, the year that the Sakhalin plant would be ready on the Asian side of the Pacific.

"We offer a much lower shipping rate," Calitz said, noting that the new plant will be only a 12-day sail from Mexico, compared with 20 days from Australia or 27 days from Qatar. "It's also a political decision. Where in the world do you want your energy to flow from? From Qatar or Indonesia? Or from Russia or Australia?"

That issue was addressed in June by the US energy secretary, Spencer Abraham, during a visit to Moscow.

"Our goal is to diversify our access to energy exports from around the world," he said.

With oil approaching $ 50 a barrel, Americans are now jostling with Japanese, Chinese and Koreans to lock in contracts in Sakhalin, where the oil and gas reserves are sometimes compared to those on the North Slope of Alaska.

"Sakhalin oil will soon be delivered to Japan," Soichi Nakagawa, Japan's economy, trade and industry minister, said during a visit to Sakhalin, the first by a high Japanese government official since the end of World War II. Japanese companies are minority investors in Sakhalin Energy and in another oil and gas project led by ExxonMobil.

"Because we are neighbours, all economic sectors are promising," he said before inspecting offshore production platforms and the construction site for the LNG factory, all part of $ 22 bn in energy investments on the island.

Also with an eye to Sakhalin, Korea Gas, the world's biggest buyer of LNG, plans to invite companies to submit bids for a20-year supply contract that could be worth $ 25 bn. With South Korea's energy needs expected to double over the next 15 years, Korea Gas may look favourably on Sakhalin, only three days away by ship.

In China, where demand for natural gas is expected to rise fivefold by 2020, Sinopec, a state energy company, has sent three missions to Sakhalin in the past year. It is now expected to make an offer to buy into the project, which is shared by Shell, Mitsubishi and Mitsui.

"Why not China, which is stationed so close, which is feeling a great need for energy resources?" Losyukov, the Russian ambassador to Japan, asked, brushing aside concerns that Moscow might veto a major Chinese investment in energy.

Losyukov, formerly Russia's deputy foreign minister for Asia-Pacific affairs, is the senior Russian diplomat in North Asia. Since arriving here last spring, he has played the role of umpire among countries competing for Russian oil and gas.

"Japan and China are our most promising partners in the energy area," he said when asked about a growing resource rivalry between Asia's two economic titans. "We don't have to take sides in this kind of competition."

"Rivalry for energy, especially oil, between China and Japan on a global scale is unavoidable," Zhang Kexi, a commentator, wrote. "It is likely that China will forever encounter Japan's global energy rivalry, just as the ongoing pipeline route dispute between China and Japan shows."

Source: International Herald Tribune