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Gazprom faces delay in starting Vladivostok LNG plant

BY YURIY HUMBER, TSUYOSHI INAJIMA and ELENA MAZNEVA

MOSCOW (Bloomberg) -- OAO Gazprom, Russia’s gas exporter, faces at least a year’s delay in starting shipments from its liquefied natural gas plant in Vladivostok, according to three people with knowledge of the matter.

The LNG facility, which the state-run company has said will begin output in 2018, may start in 2019 or 2020, said the people, asking not to be identified because the information is confidential. There are delays in sourcing the gas for the 10 million-metric-ton-a-year liquefaction capacity, they said.

The company hasn’t changed its plan to begin production at Vladivostok in 2018, a Gazprom official said by telephone from Moscow, asking not to be identified citing internal policy.

The project in Russia’s Far East is a day away by ship from the world’s biggest LNG importer, Japan, which has several supply contracts due for renewal from 2018, one of the people said. Japan has the option to renew with current suppliers Qatar, Australia and Malaysia among others or buy from emerging LNG facilities including in Mozambique, the U.S., and Russia.

This month the U.S. gave approval to Sempra Energy to sell 1.7 billion cubic feet of gas abroad. Sempra’s LNG facility is the sixth seeking to export the fuel to countries that don’t have free-trade agreements with the U.S., such as Japan.

Osaka Gas Co. and Chubu Electric Power Co., utilities serving central and western Japan, said today they’ll invest $600 million each for half the equity in the first unit of Freeport LNG Development LP’s plant in Texas.

The Asian nation is increasing LNG imports after the Fukushima nuclear disaster forced the shutdown of atomic plants and increased reliance on gas-fired generators. Japan’s trade deficit widened to a record last month on rising import costs.

The Vladivostok project will help Gazprom offset its sales to Europe by attracting more Asian buyers. A group of Japanese companies led by trader Itochu Corp. agreed with the Russian exporter in 2011 to study the feasibility of the project.

One of the gas fields that may supply the LNG plant was found to have a large oil layer on top, which may need to be pumped out before gas extraction begins, one of the people said. Drilling at the Yuzhno-Kirinskoe field continues and a clearer plan for its development won’t emerge before the end of the year, the person said.

Delays in starting LNG production would increase costs, while Japanese buyers are asking for discounts since this will be a new facility, two of the people said. The project is still attractive to Japanese purchasers, who want to diversify their supply sources, the people said.

About 10 companies are in talks with Gazprom about investing in the gas extraction or the LNG production part of the Vladivostok project, one of the people said. India, China and some Southeast Asian countries could also be buyers of LNG from Vladivostok, the person said.

02/27/2014

 

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