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. Last Updated: 07/27/2016

Russia, Mexico Talk Up LNG

ReutersPutin welcoming Mexican President Vicente Fox in the Kremlin on Tuesday.
Russia and Mexico plan to work on boosting cooperation, focusing particularly on energy, President Vladimir Putin and his Mexican counterpart, Vicente Fox, said Tuesday in Moscow.

Fox is on the first state visit to Russia by a Mexican president since the collapse of the Soviet Union in 1991.

While Mexico and Russia are both major world oil producers, Russia has long eyed Mexico as a potential customer for yet to be produced liquefied natural gas, or LNG.

"I am pleased to note that the LNG from Sakhalin Island will be sent to the Mexican coast, and some of this LNG will be destined for your country," Putin told Fox on Tuesday during a meeting in the Kremlin, according to the Kremlin web site.

Mexico is among the potential customers for LNG from a plant to be built by Sakhalin Energy, the Royal Dutch/Shell-led consortium that operates the Sakhalin-2 project under a production-sharing agreement.

Last year, Sakhalin Energy said it would ship 37 million tons of LNG from Sakhalin Island fields on Russia's Pacific Coast to Mexico over a period of 20 years, starting in 2008.

"We discussed a 20-year agreement on the supply of liquefied gas to Mexico, which will be refined at four facilities that need to be built," Fox said at a news conference Tuesday.

LNG sales to Mexico and the U.S. Pacific coast are set to be worth a total of $6 billion, according to Sakhalin Energy. Royal Dutch/Shell subsidiary Shell Eastern Trading plans to buy the LNG from early 2008 to supply the new Energia Costa Azul electricity plant in Mexico, with peak supplies reaching 1.6 million tons per year.

The LNG plant under construction on the southern tip of Sakhalin Island will be Russia's first. The entire Sakhalin-2 project, which also involves oil production, has recoverable reserves of 150 million tons of oil and 500 billion cubic meters of gas.

Another major buyer of Sakhalin Energy's LNG is slated to be energy-hungry Japan, which is expected to purchase at least 3.4 million tons of LNG per year.

On Tuesday, the Russian and Mexican energy ministries signed a memorandum on energy cooperation.

Despite the fact that Russia is yet to build a single LNG plant or port capable of handling the super-cooled gas, international interest in Russia's LNG projects is growing fast. The potential of the Sakhalin shelf and the Gazprom-controlled Shtokman fields in the Arctic has attracted the interest of most of the world's largest energy consumers.

Among the eager potential buyers of Russia's LNG, once it arrives, are the United States, which expects to import up to 100 bcm of natural gas by 2020 under a plan to boost its share of gas in domestic fuel consumption.

On Monday, in the presence of Norway's prime minister, Kjell Magne Bondevik, and oil and energy minister, Thorhild Widvey, Russia and Norway signed an energy cooperation deal.

Norwegian oil and gas majors Statoil and Norsk Hydro appear to be particularly interested in securing a role in developing the giant Shtokman fields, which have an estimated 3.2 trillion bcm in gas reserves.

Over the past year, Gazprom has been courting the world's leading oil majors over developing Shtokman, but the final choice of strategic partners has yet to be announced.

Putin on Tuesday said that Russia could also cooperate with Mexico by supplying nuclear fuel to Mexican nuclear power stations and by helping develop hydroelectric power production in Mexico.

Fox said that Mexico was interested in Russia taking part in deepwater drilling in the Gulf of Mexico, another key area for offshore oil and gas exploration.

Fox's visit to Russia comes as part of a regional tour covering a number of former Soviet republics, including Ukraine, with a large delegation of Mexican business leaders.