Forwarned is forearmed: Sakhalin-2

Concerns Arise Over Bridging Supplies if Sakhalin 2 is Delayed

Customers of Russia's Sakhalin 2 liquefaction project are becoming increasingly concerned that the project will not be able to find bridging supplies if the start-up date is delayed, sources close to the project said Dec 6.

Liquefaction projects often buy LNG from other sources to meet contractual commitments to customers if their planned start-up dates are delayed. Such deliveries are called bridging supplies.

The sources told Platts that the first shipments from the Sakhalin 2 project in far eastern Russia could be delayed until the spring of 2009 from the planned startup of December 2008.

Project operator Sakhalin Energy previously said it expected the project to start as scheduled, but on Dec 6 a Moscow spokesman for the company said he could not comment on the start-up date.

Sakhalin Energy has said that 98% of the planned 9.6 million mt/yr of output has been sold under long-term contracts, with 60% going to Japanese customers. Japan is about 900 miles away from the liquefaction plant being completed on Sakhalin Island.

The rest of the supplies are earmarked for South Korea and North America's West Coast, although some of the North American supplies could likely be diverted to higher-paying markets in Asia.

While long-term LNG contracts to Asian customers typically lack destination flexibility, if commercial deliveries from Sakhalin 2 are delayed Sakhalin Energy might be forced to pay for or procure alternative supplies with "ship-or-pay" contracts, the sources said.

"It might be difficult for Sakhalin Energy to find the alternative fuel in the period," said one source, referring to the time between the planned start-up and expected delay of the LNG shipments.

More on the link.