BUSINESS PRAGMATISM WINS OVER POLITICAL PREJUDICE

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MOSCOW, November 13 (RIA Novosti's economic analyst Vasily Zubkov)

- "Things are beginning to move along" - this is a perfect phrase to characterize the current situation with gas supplies from Sakhalin. After almost 40 years of contemplating whether to buy energy supplies from Russia (in particular, natural gas from Sakhalin) against the background of continuing territorial dispute, Japanese authorities have finally given "the green light" to their energy companies.

In our opinion, the decision has been influenced by two major factors. First, the increased activity of Beijing, which expressed the desire to buy all Sakhalin gas supplies and is considering an expert evaluation of technical and economic feasibility of the construction of a gas pipeline connecting the island with the continental part of Russia and, farther on, with China. Second, an obvious necessity to review the Japanese energy security strategy, which implies shifting of focus on a new strategic supplier of fuel carriers - Russia. It is also symbolic that such activity has increased on the eve of the Russian President's visit to Tokyo, scheduled for the beginning of next year.

The development of Sakhalin projects originally implied that Japan would be the key consumer of Sakhalin gas and oil. However, due to constant disputes over the territorial issues, the Japanese interest gradually subsided. Despite the fact that Japanese authorities officially allowed private companies to make their own choice of foreign partners in the sphere of energy supplies, the absence of implicit consent stopped the potential Japanese buyers from transforming their intentions into real contracts.

Consequently, the absence of large foreign contracts delayed the development of a large Lunsky liquefied gas field in Sakhalin for several years. In its turn, the delay of gas supply from the Lunsky field hindered the second stage of the Sakhalin-2 project, which included the construction of the first Russian liquefied gas production facility in Prigorodnoye in the south of Sakhalin. After becoming operational, its two production lines will be capable of producing 9.6 million tons of liquefied gas. The introduction of this facility will increase the export potential of the country by the factor of 5. A cargo terminal at Aniva Bay is being constructed for shipping of liquefied gas overseas.

An agreement between Japanese energy giant Tokyo Electric Power Co. (TEPCO) and international consortium Sakhalin Energy Investment Ltd. on yearly purchases of 1.5 million liquefied gas for the next 22 years, signed several days ago, became the fourth contract with Japanese companies this year. Earlier, the purchases of Sakhalin gas had been secured by several Japanese communal services companies: Tokyo Gaz (1.1 million tons per year), Kyushu Electric (0.5 million tons), Togo Gaz (0.5 million tons). If we consider the interest shown in Sakhalin gas by such giant of Japanese energy industry as Nihon Denryoku, we can claim with certainty that "the Japanese energy locomotive, after a long delay, is finally arriving at the Sakhalin station."

It is worth reminding here that shortly before TEPCO the Americans had visited this station. They signed an agreement for supplies of 37 million tons of liquefied gas starting in 2008. The gas is going to be shipped by tankers to a new terminal Energia Costa Azul, which is under construction in the Mexican state of Baja California. Korean company Kogas and some other consumers also showed interest in Sakhalin gas.

According to President of the Russian Gas Society Valery Yazev, the arrival of such an authority on the global energy market as TEPCO in Sakhalin is a momentous and long-awaited event. For the first time we have sold commodities that are going to be produced only in two and a half years. Russia will become the eighth supplier on the TEPCO list. There are sufficient prerequisite conditions for expansion of gas supplies up to 1.5 million tons per year because the facility in Prigorodnoye has the capacity for the third production line.

Mr. Yazev believes that the current situation in the Russian gas and oil industry allows Russia to choose any foreign partner. "There is no shortage of foreign clients willing to partake of rich Russian gas reserves. Having more than 30% of world gas reserves, Russia is way ahead of competition even in the long run," he said.

At the current rate of production, gas reserves of Siberia and the Russian North will last for another 81 years. In comparison, the second-place Iran has only 14.8% of world reserves, Qatar - 9.2%, the UAE - 3.9%. Indonesia and Malaysia, which account for the major part of gas supplies to Japan, South Korea and Taiwan, have only 1.7% of gas reserves (sufficient only for the next 37 and 42 years accordingly) - this is the data provided recently by director of the Institute of World Economy and International Relations under the Russian Academy of Sciences, academician Nodari Simonia.

Along with the increase of natural gas production, Russia plans to increase exports of liquefied gas by all means in the near future, announced Economic Development Minister German Gref. In 2002, the entire volume of Russian exports of liquefied gas constituted about 1 million tons per year. The future facility in Sakhalin and Petro-Canada project to construct a large liquefied gas production facility for Gazprom near St. Petersburg are the first steps in the desired direction. Gazprom and Chevron Texaco announced joint participation in the construction of liquefied gas facility in Russia; American oil giant ConocoPhillips, French Total, Norwegian Norsk Hydro, and Royal Dutch-Shell offered Russia their projects on the development of the Shtokman field in the Barents Sea and the construction of a liquefied gas facility for future supplies of gas to the United States.

The Americans plan to increase significantly the import ofliquefied gas from Russia by 2025. For that purpose, they consider the construction of about 20-34 liquefied gas terminals on the East coast of continental USA (at present there are only four active terminals). Last year the global consumption of liquefied gas was less than 140 million tons. The U.S. consumed only 11 million tons (8%). However, by 2010, the import of liquefied gas to the USA will increase to 46 million tons.

The market of liquefied gas has been growing with a lightning speed and the Japanese are in a hurry. Despite the fact that, according to President of the Russian Academy of Business Irina Golubkina, partnership with Japan has been steadily growing recently (trade turnover between the two countries has gone up 41% in the last year, and Japanese investments increased by 60%), the Japanese, as well as other Russian partners in the Asian Pacific region, still consider Russia simply as a large fueling station, capable of satisfying enormous energy appetites of their fast-growing economies.

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