Sakhalin II signs LNG supply deal with Osaka Gas

YUZHNO-SAKHALINSK, March 4 (RIA Novosti) - Sakhalin Energy, the operator of a vast oil and gas project off Russia's Pacific Coast, said on Wednesday a sale and purchase agreement had been signed for LNG supply to the Japanese company Osaka Gas.

The deal stipulates the supply of approximately 0.2 million metric tons of liquefied natural gas (LNG) annually for a period of more than 20 years. LNG will be delivered from a plant in the south of Sakhalin Island, which will eventually have a capacity of 9.6 million tons a year.

"The signing of this agreement and the Sakhalin LNG deliveries...fortify the trading and commercial relationship between Russia and Japan," Sakhalin Energy's CEO Ian Craig said during the signing ceremony.

The signing of the sale and purchase agreement follows an earlier preliminary agreement signed with Osaka Gas in 2007.

As the second largest gas company in Japan, Osaka Gas manages over 56,000 km of gas transmission pipelines, serving nearly 7 million gas customers in the Kansai region.

The Sakhalin Energy LNG plant inauguration ceremony was held on February 18, 2009. Approximately two thirds of all Sakhalin LNG will be exported to nine buyers in Japan, the world's largest LNG market. The remaining volume will go to South Korea and North America.

Mr. Hiroshi Ozaki, president of Osaka Gas, said: "LNG from Russia will be delivered to Osaka Gas for the first time, and it will be our seventh LNG source on a long-term basis, contributing to our diversified LNG procurement portfolio."

In December 2006, Russian energy giant Gazprom acquired 50% plus one share in Sakhalin Energy for $7.45 billion after months of pressure from Russian authorities, who accused the formerly Shell-led project of environmental damage to the island. The move was seen by analysts as the Kremlin's attempt to review disadvantageous 1990s production-sharing agreements. Royal Dutch Shell and Japan's Mitsui and Mitsubishi now hold 27.5%, 12.5% and 10% in the project respectively. Sakhalin II comprises an oil field with associated gas, a natural gas field with associated condensate, a pipeline, a liquefied natural gas plant, and an LNG export terminal.