Hans Peter Doorneweert Vice President LNG Sakhalin Energy Investment Company Ltd.

Transcription

1 Hans Peter Doorneweert Vice President LNG Sakhalin Energy Investment Company Ltd. Mr.Doorneweert (51) obtained his masters degree in 1974 in Mechanical Engineering at the Technical University of Twente in Enschede, The Netherlands. He joined the Shell Group of companies in 1975 and worked in various positions in maintenance and management in refineries in Europe and the Netherlands Antilles. From the mid eighties till the early nineties Mr.Doorneweert was involved in the design of LNG plants and he was a maintenance engineer in the Malaysia LNG plant at Bintulu. Early 2000 he took up his current position as Vice President LNG Division of Sakhalin Energy. Page 1 of 5

2 THE SAKHALIN ENERGY PROJECT Speech to GASEX 2000: September 11 th -14 th 2000 Pattaya Thailand Ladies and gentlemen: Hans Peter Doorneweert Vice-President LNG Division. I am the Vice-President LNG Division of Sakhalin Energy Investment Company and it is in this role that I am pleased to be present at what is a key conference for the development of Gas resources for the Asia Pacific region. Today I want to briefly review the progress, the plans, the challenges and the strengths of Sakhalin Energy s project and to focus on gas supply prospects and their significance. I will begin by giving some background. The Sakhalin Energy Investment Company Limited was established for the specific purpose of developing the Sakhalin II project off the north-east coast of Sakhalin Island. Its shareholders are Marathon Oil, with 37.5%, Mitsui, with 25%, Shell, also with 25% and Mitsubishi, with 12.5%. The Company has its head office in Yuzhno Sakhalinsk on the island of Sakhalin, and support services are provided from both Houston for the Upstream and The Hague for the LNG Plant. The company has also a representation office in Moscow. Recently a Letter Of Intent has been signed between Marathon and Shell, whereby Shell will take over the full 37.5 % interest of Marathon in Sakhalin Energy in exchange for Shell assets elsewhere in the world. The share transfer is planned to take place on the first of December, and will not affect the day to day operation of the company. The Sakhalin Energy project is the pioneering project, which will ultimately lead to the development of much of the area offshore Sakhalin as a major hydrocarbon production province in the 21 st century. The reserves are substantial. It cannot be over-emphasized that this is the major strategic source of gas and oil for the whole of north Asia. The development of Sakhalin Energy s project will be a major influence in the economic re-development of Sakhalin Island via the direct and indirect consequences of the investment. By way of background, in June 1994, Sakhalin Energy signed a Production Sharing Contract with the Russian Federation and the Sakhalin Oblast for the development of the Sakhalin II license area which includes two very large oil and gas fields, Piltun-Astokhskoye (PA) and Lunskoye. PA is an oil field with some associated gas, and lies 16 km offshore in 30 meters of water. Lunskoye is a large gas/condensate field located some 150 km south of PA, 13 km offshore in 50 meters of water. The reservoir at Lunskoye is less complex than at PA. The combined reserves of the two fields are estimated to be about 1 billion barrels of oil/condensate, and 16 Tcf free gas. It has been a long haul for those involved in developing the oil and gas export projects offshore Sakhalin but real progress is being made with the development of Sakhalin Energy s project. A drilling unit named the Molikpaq, which was specially designed for arctic conditions, was converted to a combined drilling and production platform and was installed on the Astokh feature of the PA field in August Oil production started on schedule in mid-1999, and we are now into the second production season and have produced this year 4 Million barrels since June, out of the total planned 13 Million barrels. The oil is produced to a Floating Storage and Offloading tanker (FSO) through an underwater pipeline and a Single Anchor Leg Mooring buoy (SALM). The whole system is referred to as the Vityaz Production Complex. Oil production is limited to the ice-free part of the year, approximately six months from June to December, during the first phase. During the winter the FSO is taken away and the SALM safely positioned on the seabed. The associated gas produced is currently being re-injected or used as fuel on Molikpaq. Eventually this will be disposed of on-shore. Currently Sakhalin Energy is planning to start a water-flood project for pressure maintenance, which will enable a plateau production rate of around 90,000 b/d to be maintained. Page 2 of 5

3 The Sakhalin Energy shareholders have made a significant investment already into this project. Total expenditure by the end of the 1999 was in excess of USD 1.2 billion. Sakhalin Energy is by far the largest investor in the resources on Sakhalin Island and is the furthest ahead by some way in the development of the resources of this frontier province. Concurrently, Sakhalin Energy is preparing development plans for the full PA field and for Lunskoye. It is anticipated that there will be further platforms on the PA field. On Lunskoye a single platform is expected to be sufficient, perhaps with some sub-sea completions. Hydrocarbons will be brought ashore via a sub-sea pipeline system linking the platforms in the two fields to an onshore processing facility near Nogliki. Stabilized crude oil and dry pipeline gas will be transported from the processing facility to Prigorodnoye in the south of the island via 650-km pipelines. Oil will be shipped from an oil export terminal and the gas will be received into an adjacent LNG plant and the LNG shipped to the markets. The capacity of the gas pipeline will be sufficient for a 9.6 Mtpa two train LNG plant and for supplies to the domestic market. Through various novel features the capacity per LNG train has reached a record high giving the trains an advantage in economy of scale. There will be the capability to increase the capacity through additional compressor stations, which will be planned at the outset. SE s target is to start delivering first LNG in November This target is set to meet several objectives but primarily among them is the belief that the gas market will be there to support the project and that the customers will find the combination of a strategic supply source and commercial terms unique, attractive and competitive. To that end, the project schedule implies that the project definition and specification engineering should start shortly and SE is fully confident that it will do so. We are well aware that the eyes of the world are on the Sakhalin II project as a bell-weather for future development of export projects from Russia under PSA agreements. This is a pioneering project in many respects. I have already referred to the technical challenges facing Sakhalin Energy to develop these fields but there are also other challenges. The Russian approval process has, for instance, been a challenge. It has been a learning process for the Russian party and ourselves. Sakhalin Energy needed about a 1000 different technical, environment and operating permits and approvals to start the Molikpaq. Nonetheless, Sakhalin Energy succeeded and we are producing and exporting oil, and this is this experience, unique to any consortium developing hydrocarbons in the Sakhalin region, which gives us the confidence to be able to go forward to develop the LNG project, knowing that we will be able to meet a delivery schedule of end 2006 and clearly understand our costs. We hope that the success of Sakhalin Energy and co-operation with the authorities will help Russia to streamline these approval processes. Perhaps the most important challenge for Sakhalin Energy is the development of the Lunskoye field, which requires long-term commitments to supply LNG from a green-field project in Russia to the competitive LNG markets of Asia Pacific. Sakhalin Energy is under no illusion about the size and importance of this task. Marketing LNG is a tough challenge at present and likely to get tougher. The economic crisis in Asia created uncertainty in the minds of buyers on future demand. In addition the de-regulation and liberalization in many of the Asian markets is changing the nature of the industry with the introduction of new players. It is no longer clear who in the long term will be the buyers, and how much volume they may be able to purchase. Competition is intense and likely to get more so. Despite the environment, Sakhalin Energy will be one of the successful projects since there are several factors which give us a strategic edge for future LNG supplies into the Asia Pacific market. First is geographical location. Sakhalin is well placed to supply the key LNG markets in NE Asia. We are much closer to the main markets than any of our competitors. This means that Sakhalin requires fewer ships to serve these markets than the competing LNG export projects with consequent impact on costs. Page 3 of 5

4 Second is the reserve base. We have enough reserves to support a 9.6 Mtpa LNG export project for over 20 years without the need for further appraisal. There is upside potential in Lunskoye as well as the associated gas available from the PA field. Third, the Sakhalin area offers supply diversity to the existing key LNG markets and buyers. Fourth, Sakhalin Energy is able to call on the expertise and experience of its shareholders who together have an unrivaled track record in the various phases of the highly specialized LNG business and who all support the present schedule to start LNG delivery on the first of November 2006 Fifth, we have political support from all levels of the Russian Party. The effort put into negotiating the Production Sharing Agreement, and subsequently into developing a sound legislative framework for its implementation, provides a sound commercial basis for hydrocarbon exports. A key feature of the PSA is the confidence it gives to all parties, particularly the buyers and the finance organizations. Finally, Sakhalin Energy has commercial attributes which make us attractive to the buyers, and which Sakhalin Energy believes are unique to ourselves. It is also clear that, in the newly de-regulating and liberalizing markets of today, Sakhalin Energy has to be, and is being, increasingly flexible and is adapting to the new situation. New players are emerging and it is likely that competition will intensify, which after all, is the intent of liberalization. We do not believe that any single market will be able to absorb all of our gas, and that we will have to supply several customers in different markets and countries. Specific terms are needed to make our customers competitive in their individual markets. Sakhalin Energy is driven by our individual customers need to be competitive, in terms of volume, timing and price structures. We aim to create strategic relationships to ensure that both our customers and ourselves together remain long term major suppliers of gas into the individual markets. As mentioned above, Sakhalin Energy is under no illusions, but, at the same time, it is clear that this project can and is being engineered to a competitive cost and to a schedule, that, building on Marathon s success, Shell can deliver this project to the market, and that the combination of Mitsui, Mitsubishi and Shell is the strongest combination of partners in the industry in terms of marketing capability. This is one of the main strategic gas plays in the world, and clearly the best positioned to supply both gas and oil into north-east Asia. There is a substantial amount of gas in Sakhalin and it is important that Russia and the Sakhalin Oblast further develop their strong economic relations with their Asian neighbors. Gas penetration in each of the markets in North Asia is still low, so gas still has the potential to be a substantial growth industry. Many schemes have been talked about for supplying gas or power from Sakhalin and the Russian Far East to the Asian markets including ambitious schemes via pipelines over a number of years. The future should indeed be bright for both pipeline and LNG provided that they can deliver gas economically. The problem has been how to get such large 'mega' projects started. In order for gas demand to materialize, infrastructure such as high pressure trunk lines, local distribution systems, power plants, etc. has to be put in place to distribute and then enable the gas to be consumed. The challenges relate to the lead-time and the cost of putting this into place, and it is this that will limit the penetration of gas at least in the short term. There is no doubt that major pipeline schemes to supply Russian gas will happen one day, but the reality is that it will take time to mature these options. The logistics of developing the market infrastructure together with the legal and regulatory issues that need to be resolved mitigate against developing these options quickly. Sakhalin Energy is uniquely positioned. Sakhalin is very close to both Korea and Japan. Much of Sakhalin Energy's crude production already goes to Korea, China, and soon hopefully Taiwan. LNG has a clear strategic value to all of north Asia, particularly Japan and Korea. Phase1 of the PA field has been developed and is producing oil, the first and only company to do so offshore Sakhalin, and is the first step on the road to developing the Sakhalin hydrocarbon export potential. Sakhalin Energy recognizes the challenge of the Page 4 of 5

5 market conditions and environment, but we believe we have a unique market position, that we have shown that we can develop projects in Russia and that we are playing the key and leading role in this pioneering development from our corporate headquarters in our new Yuzhno-Sakhalinsk office. Thank you much for your attention. Hosted by: Bangkok RAI : 226/25 Bond Street Riviera Tower 3, Muang Thani, Managed by: Chaengwattana, Nonthaburi Thailand Tel: (+662) , , Fax: (+662) gasex@bkkrai.com, Page 5 of 5