Russia Opens Its First LNG Plant to Tap Asian, U.S. Markets

By Stephen Bierman

Feb. 18 (Bloomberg) -- Russia opened its first liquefied natural gas plant today on Sakhalin Island, allowing operator OAO Gazprom to access new export routes to Asia and the U.S.

The facility, part of the Sakhalin-2 project, will produce 3.2 million metric tons of LNG this year, or about 50 cargoes, according to Ivan Chernyakhovsky, spokesman for operator Sakhalin Energy.

The new plant, just 160 kilometers (100 miles) from the northern tip of Japan’s Hokkaido, has contracts to deliver LNG to nine customers in Japan, one client in South Korea and one buyer in North America, Chernyakhovsky said. Sakhalin-2 will reach its annual capacity of 9.6 million tons of LNG next year, he said.

The new LNG plant will provide about 7 percent of Japan’s LNG demand, Japanese Prime Minister Taro Aso told the opening ceremony. Russia is “building a window to Asia,” he said.

Russia, holder of the world’s largest gas reserves, is seeking to coordinate investment and output with other producing nations as LNG opens up markets unreachable by pipeline. Gazprom, whose profits still depend on gas piped to Europe, plans to spend $45 billion on LNG projects over the next 20 years.

The state-run company, with no LNG experience of its own, took control of the Sakhalin-2 development from Royal Dutch Shell Plc in 2006 after regulators threatened to close the $22 billion project on environmental grounds. The 100 percent foreign-owned project, approved as a production sharing agreement in 1994, had become an anomaly as then-President Vladimir Putin tightened control over the domestic energy industry.

To contact the reporters on this story: Stephen Bierman on Sakhalin Island at sbierman1@bloomberg.net;