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. Last Updated: 07/27/2016

Plan Foresees Shipping Sakhalin Gas to Mexico

TOKYO -- Russian liquefied natural gas would be shipped across the Pacific to help power California under a contract that is in "very, very advanced" negotiations, according to a corporate executive on Sakhalin Island.

The gas would go to a terminal in northern Mexico from a plant on Sakhalin that is to open in 2007, becoming the country's first plant to chill natural gas for shipping, according to Andy Calitz, commercial director of the Sakhalin Energy Investment Co., a production consortium led by Royal Dutch/Shell.

Although occasional tankers of oil have crossed the Pacific this summer, sailing from Sakhalin to Hawaii and Alaska, the new deal would give a big lift to faltering efforts by Russia and the United States to cooperate on energy.

"We are prepared to ship gas and oil directly to the United States," Alexander Losyukov, Russia's ambassador to Japan, said last week, alluding to the gas contract, which received official Russian approval in July. "We want to be a reliable supplier, probably more reliable than the Middle East."

The buyer, a Shell-Sempra Energy joint venture, is expected to give final approval to the contract in September. By December, this group expects to break ground on a $600 million regasification plant in Mexico. The plant in Ensenada, about 130 kilometers south of San Diego, would turn superchilled liquid into gas to be moved by pipeline to northern Mexico and southern California. The plant is to be ready in 2007, the year that the Sakhalin plant would be ready on the Asian side of the Pacific.

"We offer a much lower shipping rate," Calitz said last week, noting that the new plant will be only a 12-day sail from Mexico, compared with 20 days from Australia or 27 days from Qatar. "It's also a political decision. Where in the world do you want your energy to flow from? From Qatar or Indonesia? Or from Russia or Australia?"

That issue was addressed in June by U.S. Energy Secretary Spencer Abraham during a visit to Moscow. "Our goal is to diversify our access to energy exports from around the world," he said.

With oil approaching $50 per barrel, Americans are now jostling with Japanese, Chinese and Koreans to lock in contracts in Sakhalin.

"Sakhalin oil will soon be delivered to Japan," Soichi Nakagawa, Japan's economy, trade and industry minister, said Tuesday during a visit to Sakhalin, the first to the island by a high Japanese government official since the end of World War II. Japanese companies are minority investors in Sakhalin Energy.

"Because we are neighbors, all economic sectors are promising," he said before inspecting offshore production platforms and the construction site for the liquefied natural gas factory, all part of $22 billion in energy investments on the island.

Also with an eye to Sakhalin, Korea Gas has been planning to invite companies to submit bids for a 20-year supply contract that could be worth $25 billion. With South Korea's energy needs expected to double over the next 15 years, Kogas may look favorably on Sakhalin, only three days away by ship.

In China, where demand for natural gas is expected to increase fivefold, to 21 billion cubic meters, by 2020, Sinopec, a major state energy company, has sent three missions to Sakhalin in the last year. It is now expected to make an offer to buy into the project, which is shared by Shell and two Japanese companies, Mitsubishi and Mitsui & Co.

"Why not China, which is stationed so close, which is feeling a great need for energy resources?" Losyukov asked in an interview, brushing aside concerns that Moscow might veto a major Chinese investment in energy.

The ambassador, formerly deputy foreign minister for Asian-Pacific affairs, is the senior Russian diplomat in North Asia. Since arriving here last spring, he has played the role of umpire among countries competing for Russian oil and gas.

"Japan and China are our most promising partners in the energy area," he said. "We don't have to take sides in this kind of competition."

But many oil experts in the region believe the race for resources is just beginning.

"Rivalry for energy, especially oil, between China and Japan on a global scale is unavoidable," Zhang Kexi, a commentator, wrote last month in The China Daily. "It is likely that China will forever encounter Japan's global energy rivalry, just as the ongoing pipeline route dispute between China and Japan shows."

It looks as if China has lost one round on a major oil pipeline. Russia appears to want to build a pipeline to the Pacific to export eastern Siberian oil. Fearful that a pipeline to China would make Russia captive to a single buyer, Moscow wants to take oil to its Pacific port of Nakhodka, where it could then go to a wide range of markets, including the United States.

"The whole project is in the final stages of preparation," Losyukov said, referring to what could be a 4,000-kilometer, $12 billion pipeline to the Sea of Japan, largely financed with Japanese money. "The final decision will be announced in early fall, probably September or October."

Oil shipments are to start from Perevoznaya, a port near Nakhodka, in 2006, four years earlier than originally planned, according to an announcement made last month by Transneft, Russia's state oil transport company. Next year, work is to start near Lake Baikal on the first 600 miles of this pipeline.