Financial Times: Exxon rethinks natural gas delivery options: “Energy analysts say that if Sakhalin-1 converts to LNG it may have to strike a deal with the Shell-led project…”: “Julian Barnes at the Shell-led project, said: "I am not aware of any approach made by Sakhalin-1 to share our LNG plants. But we would be open to such a discussion if it would bring value to them [Exxon] and to us and our partners." (ShellNews.net) Posted 5 Nov 04

By Enid Tsui in Hong Kong and David Pilling in Tokyo

November 5 2004

ExxonMobil, the US energy company, would consider marketing gas from the giant Sakhalin-1 project in Russia's far east in the form of liquefied natural gas (LNG), Lee Raymond, chairman, said on Thursday.

In what would be an embarrassing climbdown by the company, which has always insisted a pipeline is the most cost-effective method of delivering gas, Mr Raymond said the Exxon-led consortium was considering several options, including converting gas to LNG, or piping it to Japan or China.

Energy analysts say it would make sense to consider LNG, in which gas is turned into a liquid and transported by ship before being regassified at its destination. That would allow th e project, which has recoverable reserves of 458bn cu m, to market gas for shorter contract periods to several countries.

Sakhalin-1, which was initially financed by the Japanese government before Exxon took over as operator, had always intended to pipe gas to Japan as a sole market. But Japanese utili ties, recently deregulated and no longer answerable to the government, have refused to sign the long-term contracts needed to make a pipe- line economically feasible.

Japan has no national grid for piped gas and utilities have enough gas from existing contracts to fuel their gas-fired power stations. Tokyo wants to bring energy from Sakhalin-1 to Japan as part of a long-term policy to diversify from Middle Eastern oil.

Sakhalin-2, a $10bn (€7.8bn, £5.4bn) development led by Shell that neighbours Exxon's project, has stolen a march on Sakhalin-1 partly because it has marketed gas in the form of LNG. Japanese utilities have signed long-term contracts for 3.4m tonnes of gas a year, while South Korea and California have shown interest.

Energy analysts say that if Sakhalin-1 converts to LNG it may have to strike a deal with the Shell-led project, which is building an 800km land pipeline down the length of Sakhalin to two "trains" with the capacity to liquefy 9.6m tonnes of gas a year. The Sakhalin government, which shares in the profits from both projects, favours joint use of existing infrastructure.

Julian Barnes at the Shell-led project, said: "I am not aware of any approach made by Sakhalin-1 to share our LNG plants. But we would be open to such a discussion if it would bring v alue to them [Exxon] and to us and our partners."