Sakhalin I Consortium Faces Fresh Trouble Over Pipeline Dispute

Strategic Insights -

The ExxonMobil-led Sakhalin I consortium is embroiled in a dispute with the Sakhalin authorities over the project's 2001 financing plan, a long-running issue that has hindered the project's progress. The disagreement centers on the best route for transporting oil from the Russian far east project, with the consortium favoring a 200km pipeline to De Kastri on the Russian mainland and the Sakhalin authorities pushing for a 700km pipeline to Prigorodnoye on the southern tip of the island. The government has appointed German Gref to mediate the issue, but the Prigorodnoye option is backed by the island's other main foreign consortium, Sakhalin Energy, operated by Shell.

Key Takeaways:

  • The Sakhalin I consortium, led by ExxonMobil, has approved a $150mn budget for next year, pending approval by the Sakhalin administration.
  • The disagreement over pipeline routes is rooted in the Sakhalin I partners' desire to transport oil through a 200km pipeline to De Kastri, while the Sakhalin authorities prefer a 700km pipeline to Prigorodnoye.
  • Rosneft, a Sakhalin I partner, estimates that the cost of building an underwater pipeline and boosting capacity at De Kastri to 6mn t/yr is $579mn, compared to $1.15bn for the Prigorodnoye option.
  • Sakhalin Energy, led by Shell, is backing the Prigorodnoye option, citing its year-round functionality and potential for maximum revenue generation.
  • The Sakhalin I partners are also at odds with the Russian authorities over plans to ship future gas output from their project by pipeline through Russia to China and Japan.

Statistics:

  • The Sakhalin I consortium has approval for a $150mn budget for next year (FSUE, Nov 24, p1).
  • Rosneft estimates the cost of building an underwater pipeline and boosting capacity at De Kastri to 6mn t/yr at $579mn (Anonymous Rosneft source).
  • The cost of building an underwater pipeline and boosting capacity at Prigorodnoye is estimated at $1.15bn (Anonymous Rosneft source).
  • Sakhalin Energy currently ships 70,000 b/d from an offshore loading platform during the production season (Sakhalin Energy official).
  • The Sakhalin I and Sakhalin II production-sharing agreements stipulate joint infrastructure development (Russian government claim).

Sources:

  • FSUE (Russian state-owned company) (Nov 24, p1)
  • Anonymous Rosneft source
  • Sakhalin Energy official