Sakhalin Energy — 20 Years of “Firsts” as Russia’s Pioneer in Offshore and LNG

By Pat Davis Szymczak, May 5, 2014

the long-term programs just mentioned, the company is implementing many short-term projects to provide charitable contributions and support environmental, educational, and cultural or art initiatives in local communities. An outstanding cultural event for Sakhalin was the exhibition of masterpieces from the Russian Museum of St. Petersburg that we arranged to be held at the Sakhalin Regional Art Museum in commemoration of the 20th anniversary of Sakhalin Energy.  

OGE: Can you comment on the LNG supply and demand in the Far East? How will Sakhalin Energy compete over the next 20 years?

Dashkov: We believe that demand for LNG in East Asia will continue to be strong. While a proportion of Japanese nuclear power stations may re-start progressively, this will most likely be partial. It will take time, will disproportionately displace oil consumption in power generation, and be offset by underlying demand growth. At the same time other markets, notably China but also new LNG markets in Southeast Asia, are expected to show significant growth.

Speaking about completion, Sakhalin Energy has long-term contracts for about 90 percent of the production from its existing two LNG trains, which extend for the next 15-plus years. Furthermore, Sakhalin has the advantage of its close proximity (and hence a short shipping distance) to Japan, which will support the sale of remaining uncommitted volumes.

OGE: How do you see the potential export to the Far East of Canadian and possibly U.S. LNG in the future as affecting Sakhalin Energy’s markets and competitive position? How will LNG from Australia and elsewhere in Asia affect your markets?

Dashkov: The key questions about LNG from the U.S. and Canada are when it will start to be exported in significant volumes and at what price? For the next five years, we think the effect in East Asia will be relatively small. The market will continue to require significant volumes of LNG from other supply sources, such as Australia, so will have to be priced at a level that makes Australian LNG viable. We think Sakhalin Energy is well-placed to compete with Australian LNG.

OGE: Do you see spot markets as having a greater influence on pricing moving forward and how would that affect Sakhalin Energy’s business and future investment strategies (such as adding trains to the LNG plant?)

Dashkov: Increasing volumes of LNG in Asia are being sold outside traditional long-term oil-linked contracts, although the majority of volumes remain tied into long-term contracts. Therefore spot prices tend to influence at the edges of the market – for example establishing seasonal price peaks.  For Sakhalin Energy, spot prices would primarily affect only about 10 percent of uncommitted volumes.

OGE: O ther companies, Rosneft among them, have announced plans to build new LNG facilities in the Russian Far East. Are such new LNG projects a necessity? Or would expanding Sakhalin Energy’s LNG plant be just enough?

Dashkov: Current plans to develop new LNG projects in Russia are indeed progressing alongside the plans to