Sakhalin-II


The Sakhalin-2 project is an oil and gas development in Sakhalin Island, Russia. It includes development of the Piltun-Astokhskoye oil field and the Lunskoye natural gas field offshore Sakhalin Island in the Okhotsk Sea, and associated infrastructure onshore. The project is managed and operated by Sakhalin Energy Investment Company Ltd..
Sakhalin-2 includes the first liquefied natural gas plant in Russia. The development is situated in areas previously little touched by human activity, causing various groups to criticize the development activities and the impact they have on the local environment.

History

The original consortium, was a joint venture between Marathon Oil, McDermott, and Mitsubishi. They won a tender from the Russian Government in 1992. Later that year Royal Dutch Shell joined the joint venture. In 1994 the JV incorporated in Bermuda to form Sakhalin Energy Investment Company Ltd. Sakhalin Energy, led by Marathon, negotiated the first PSA directly with representatives of the Russian government. The Russian Party maintained project planning and budget approval. The initial investment decision was to proceed with the oil field development led by Marathon. McDermott sold its share to the other partners in 1997 and Marathon traded its shares to Shell for an interest in other properties in 2000.
The decision to proceed with the gas project investment was made in 2003. The expected budget increased dramatically by 2005–2006. The pipeline portion of the gas project was heavily criticized due to environmental issues. Legal proceeding on perceived violation of the Russian environmental regulations were initiated.
In the result, The Russian government ordered to terminate the project in September 2006. Under legal and political pressure, the consortium was forced to sell a majority stake to Gazprom. On 21 December, Gazprom took control over a 50%-plus-one-share stake in the project by signing an agreement with Royal Dutch Shell. Russian President Vladimir Putin attended the signing ceremony in Moscow and indicated that environmental issues had been resolved.
The LNG plant was inaugurated on 18 February 2009. The first cargo was loaded to the LNG carrier Grand Aniva at the end of March 2009.
After the Russian invasion of Ukraine in February 2022, Shell said that it would exit Sakhalin-2 and other ventures in Russia. On 30 June 2022, Russian President Vladimir Putin signed a decree ordering the transfer of the Sakhalin-2 project to a new domestic operator. Foreign investors will be required to apply to retain their existing shares in the new Russian company within a month. The Russian government will then decide whether to allow foreign shareholders to keep their stake. If they are rejected, the government will sell the foreign shareholder’s stake and keep the proceeds in the shareholder’s special account. In April 2023, the Russian government approved the sale of Shell's 27.5% stake to Novatek for RUB 94.8 billion. At the same time, Novatek secured the consent of President Putin so that Shell could withdraw these funds from Russia.
As marine insurance policies come up for renewal, the Japanese government has asked non-life insurance companies to offer war coverage to LNG shippers in Russian waters.
Sakhalin-II has been exempted from sanctions by the UK and US governments until June 28, 2024. The Office of Foreign Assets Control later announced the US would extend its exemption to June 18, 2026, provided any byproducts are solely exported to Japan.

Technical features

The two fields contain an estimated of crude oil and 500 billion cubic meters of natural gas; 9.6 million tonnes of liquefied natural gas per year and about of oil will be produced. The total project cost until 2014 was originally estimated by Royal Dutch Shell to be between US$9 and $11 billion. However, the costs turned out to be substantially underestimated and in July 2005 Shell revised the estimate upwards to $20 billion.
Sakhalin-2 project includes:
  • Piltun-Astokhskoye-A platform
  • Lunskoye-A platform
  • Piltun-Astokhskoye-B platform
  • Onshore processing facility
  • TransSakhalin pipelines
  • Oil export terminal
  • LNG plant
  • Plans for an additional platform

    Piltun-Astokhskoye-A platform

The Molikpaq drilling and oil production platform is an ice-resistant structure, originally built to explore for oil in the Canadian Beaufort Sea. It had been mothballed in 1990, and was installed in the Astokh area of the Piltun-Astokhskoye field, offshore, in September 1998. The Molikpaq has production capacity of of oil and 1.7 million cubic meters of associated gas.

Lunskoye-A platform

The Lunskoye field platform was installed in June 2006 at the Lunskoye gas field offshore. It has production capacity over 50 million cubic meters of natural gas, around of peak liquids, and of oil.

Piltun-Astokhskoye-B platform

The PA-B platform was installed in July 2007 in the Piltun area of the Piltun-Astokhskoye oil field, offshore. The PA-B has production capacity of of oil and 2.8 million cubic meters of associated gas.

Onshore processing facility

The onshore processing facility is located in the north-east of Sakhalin Island, inland in Nogliki district. It is designed to process natural gas, condensate, and oil from the Lunskoye and the Piltun-Astokhskoye fields prior to pipeline transportation to the oil export terminal and the liquefied natural gas plant in Aniva Bay in the south of Sakhalin Island.

TransSakhalin pipelines

The TransSakhalin pipeline system is designed for transportation of hydrocarbons from the Piltun-Astokhskoye and Lunskoye fields in the North of Sakhalin Island to the onshore processing facility in the Nogliki district and to the LNG plant and the oil export terminal in Aniva Bay.

Oil export terminal

The oil export terminal is located in Aniva Bay to the east of the LNG plant. It includes the export pipeline and the tanker loading unit, where oil-loading to tankers is performed.

LNG plant

The Sakhalin-2 LNG plant is the first of its kind in Russia. It is located in Prigorodnoye in Aniva Bay, east of Korsakov. Construction of the LNG plant was carried out by OAO Nipigaspererabothka and the KhimEnergo consortium, together with two Japanese companies Chiyoda Corporation and Toyo Engineering Corporation. The plant has been designed to prevent major loss of containment in the event of an earthquake and to ensure the structural integrity of critical elements such as emergency shut down valves and the control room of the plant.
The LNG plant includes:
The LNG plant production capacity is 9.6 million tons of LNG per year. The consortium is examining the possibility of adding another train. A special gas liquefaction process was developed by Shell for use in cold climates such as Sakhalin, based on the use of a double mixed refrigerant.
The LNG plant has two LNG double-walled, storage tanks with a capacity of each. LNG is exported via an jetty in Aniva Bay. The jetty is fitted with four arms – two loading arms, one dual purpose arm and one vapour return arm. The upper deck is designed for a road bed and electric cables. The lower deck is used for the LNG pipeline, communication lines and a footpath. LNG is pumped from the storage tanks into the parallel loading lines which are brought to the LNG jetty. At the jetty head, the pipelines are connected with the jetty's four loading arms. The water depth at the tail of the jetty is.

Supply contracts

Contracts for the supply of LNG have been signed with:
  • Kyūshū Electric Power Company: 0.5 million tonnes per year – 24 years
  • Shell Eastern Trading Ltd: 37 million tonnes over a 20-year period
  • Tokyo Gas: 1.1 million tonnes per year – 24 years
  • Toho Gas: 0.5 million tonnes per year – 24 years
  • Korea Gas Corporation: 1.5 million tonnes per year – 20 years
  • Hiroshima Gas Co. Ltd: 0.21 million tonnes per year −20 years
  • Tōhoku Electric Power Company: 0.42 million tonnes per year – 20 years
  • Osaka Gas: 0.20 million tonnes per annum – 20 years
  • Chūbu Electric Power Company: 0.5 million tonnes per year – 15 years

    Consortium

The projects is owned and operated by Sakhalin Energy. Shareholders of Sakhalin Energy are:
  • Gazprom Sakhalin Holdings B.V. – 50% plus 1 share
  • Mitsui Sakhalin Holdings B.V. - 12.5%
  • Diamond Gas Sakhalin – 10%
  • Confiscated from Shell Sakhalin Holdings B.V. – 27.5% minus 1 share, valued at 94.8 billion roubles by a Russian auditor.

    Financing

Sakhalin Energy looked for finances from the European Bank for Reconstruction and Development. However, on 11 January 2007 EBRD withdrew its consideration of financing for Sakhalin-2, claiming that Gazprom's acquisition of the controlling stake of Sakhalin-2 resulted in a to the project making it is unfeasible for the EBRD to pursue the current project. Meanwhile, environmental organizations contend that Sakhalin II had "chronically and substantially violated EBRD's environmental policy".
The consortium applied for nearly a billion dollars in financing from the public export credit agencies of the United States and the United Kingdom, but in early March 2008 these applications were withdrawn due to the drawn-out and uncertain decision-making process] by these banks. However, environmental groups contend that the drawn-out process was due to the fact that the company failed to demonstrate compliance with these public banks' environmental policies.
In June 2008 Sakhalin Energy signed Russia's largest project finance deal, securing a loan of US$5.3 billion from the Japan Bank for International Cooperation and a consortium of international banks. Japan Bank for International Cooperation provided $3.7 billion of the funds.
In October 2009 Sakhalin Energy secured an additional $1.4 billion in project financing, bringing the total Phase 2 project financing up to $6.7 billion. The additional debt was provided by a consortium of international commercial banks and insured by Nippon Export and Investment Insurance, an Export Credit Agency owned by the Japanese government.