Energy profile of Sakhalin Island, Russia
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Introduction
Sakhalin Island, a former penal colony located off the east coast of Russia and to the north of Japan, holds vast hydrocarbon resources. International consortia of energy companies have entered into production sharing agreements (PSAs) to develop the resources. Oil reserves in the area are estimated at around 14 billion barrels, and natural gas reserves at approximately 96 trillion cubic feet. Even though all of the consortia have extensive export plans (including to the United States) via liquified natural gas (LNG) terminals and export pipelines to the mainland, there has been little progress except on the first two parts of Sakhalin Island: Sakhalin 1 and Sakhalin 2. These lie to the southeast of Okha (see map).
Sakhalin 1
The Sakhalin I project is being led by Exxon Neftegaz, in conjunction with consortium members SODECO, ONGC Videsh, Sakhalinmorneftegaz, and RN Astra. Drilling began in May 2003, and in October 2005, oil and natural gas production began at 50,000 barrels per day (bbl/d) and (on average) 60 million cubic feet per day (mcf/d), respectively. The first phase of the project entails development of the Chayvo field, and subsequent phases will develop the Odoptu and and Arkutun Dagi fields. In October 2006, a newly completed onshore processing facility (OPF) began to process the oil and natural gas from the field; in February 2007, oil and natural gas processing rates reached 250,000 bbl/d (the expected peak oil target) and 134 mcf/d (short of the expected rate of 800 mcf/d), respectively. The oil and natural gas are piped to the Russian mainland to the export terminal of DeKastri. Exports of oil to world markets, with the assistance of ice-breaking vessels, began in August 2006. Sakhalin I's natural gas is expected to be sent southward to Japan via a proposed pipeline by 2008.
Sakhalin-1 will be the largest single foreign direct investment in Russia. Capital investment over the life of the project could reach as much as $12 billion. To date, the Consortium has spent over $2.6 billion on various exploration activities, environmental studies, engineering design studies, infrastructure improvements, taxes and other expenditures.
Sakhalin 2
The Sakhalin II project is being developed by Shell, Mitsubishi, and Mitsui, and entails the development of Russia's first liquefied natural gas (LNG) facility, to be built on the southern tip of the island, near the town of Prigorodnoye (see map). Construction of the project's two-train, 9.6-million-tons-per year facility began in early 2003, with Shell expecting initial LNG production beginning in 2007. LNG exports are scheduled to commence in 2008.
Sakhalin II will also be used to supply natural gas to the United States. In late 2004, Sakhalin Energy signed a contract with Coral Energy to supply 1,800 billion cubic feet (bcf) of LNG over 20 years to a power plant on the border of California and Mexico. The LNG will be delivered via tanker to the Energia Costa Azul terminal being constructed in Baja California, Mexico. In March 2004, Sakhalin II announced the sale of 300,000 tons of LNG per year to Japan's Tokyo Gas and Tokyo Electric Power (TEPCO) starting in summer 2008. In July 2005, the project operators announced a 20 year sales agreement of 1.6 million tons per year of LNG to Korea Natural Gas (KOGAS).
Some of these contracts have had to be renegotiated as the target start date for LNG exports has been delayed from late 2007 to mid 2008. The delays are mainly due to environmental hurdles and to rising costs. A recent report by the World Conservation Union expressed concern that a planned pipeline route from Sakhalin Island to Japan (see map) would harm Pacific gray whales. The consortium members had expected around $5 billion in loans through 2006, but with the Phase II (LNG project and year-round oil production) cost raised above $20 billion, Sakhalin Energy's CEO announced that those loans would not be forthcoming as early as the project's operators had hoped. For these reasons, LNG production has been delayed until at least 2008, and year-round oil production has been delayed until at least 2007.
Sakhalin II began crude oil production during 1999, averaging 80,000 bbl/d of production during July 2005. Completion of Phase II (sometime during late 2007) would increase daily production from Sakhalin II to around 180,000 bbl/d.
Sakhalin III-IV
Areas of Sakhalin Island lying to the north and southeast of Sakhalin I and II are at various preliminary stages of development. More information on these projects' development and expected production levels can be found on the fact sheet above.
Further Reading
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