Sakhalin II—Implications for Russia

Implementation of the world’s largest integrated oil and gas Sakhalin II project accelerated a number of processes of major importance for the development of Russia and its Sakhalin Oblast.

The development, being Russia’s first natural gas liquefaction project, with a proprietary gas liquefaction process, represents a technological breakthrough for Russia, while LNG transportation adds a new segment to the Russian shipping market.

The start-up of the LNG plant positions Gazprom, the leading shareholder of the project, as a global energy company.

The project became a driving force of Sakhalin infrastructure development, leading to the construction or renovation of motorways, railways, seaports and airports; before the project commencement many of these facilities had only met the minimum requirements.

The project annually invests millions of dollars in social programmes, including the construction or renovation of hospitals and medical centres, procurement of medical equipment, recovery assistance after the 2007 Nevelsk earthquake, development of educational and sports programmes for schools, provision of study grants, support to the indigenous people, implementation of a number of environmental initiatives, etc.

In the long term, the project is expected to create about 2.5 thousand full-time jobs. In addition, many local firms provide various services to the project, including design, consulting, infrastructure development, transportation, public catering and hotel services.

Phase 1 of the project was largely financed by the shareholders of Sakhalin Energy, with additional financing contributed by three financial institutions: European Bank for Reconstruction and Development (EBRD), Overseas Private Investment Corporation (OPIC) and Japan Bank for International Cooperation (JBIC). This was the first project finance deal undertaken by the EBRD in the Russian oil and gas industry. EBRD, OPIC and JBIC contributed USD 116 million each to the financing of Phase 1 of the project. Phase 2 is financed by the project shareholders including through reinvestment of sales revenue from Phase 1.

The Molikpaq (PA-A) platform installed in 1998 was Russia’s first offshore ice-resistant platform. Over nine years the platform delivered over 13.2 million tonnes (or 100 million barrels) of Vityaz crude oil in seasonal production. The oil was exported to buyers in Japan, Korea, China, Thailand, USA, Taiwan and the Philippines. Vityaz oil is light and has low sulfur content and is similar to Oman light crude oil.

The steel base structure for the Molikpaq platform was designed in 1997 by the Rubin Central Design Bureau for Marine Engineering and the Krylov Shipbuilding Research Institute in Saint-Petersburg, Russia. A year later the base structure was built at the Amur Shipbuilding Yard in Komsomolsk-on-Amur, Russia. It is the first project of such kind undertaken by Russian shipyards.

Several world records have been broken during installation of the platforms.

The experience in construction of the concrete gravity base structures for the two other platforms was also unprecedented. The base structures, which are among the world’s largest movable artificial structures, were built in the Vostochniy port in Primorski Kray. Over one hundred Russian companies were involved in the construction.

Installation of the platforms has broken several world records. A specially built transportation barge as large as two football pitches has brought the Lunskoye-A platform topsides to the Sakhalin shelf. 21,800 tonnes of the topsides were lifted to the record height of 25 metres. Then the transport barge was towed between the legs of the platform and the topsides were lowered into place, using the so-called float-over technique. This was the world record for float-over operations of this kind. A year later Sakhalin Energy broke its own record by successfully installing the 28,000-tonne topsides of the PA-B platform.

Involvement in the Sakhalin II project gives Russian companies access to best practices, a wealth of expertise and knowledge and the most advanced technologies, as well as an opportunity to improve safety and service quality, thus enabling them to compete more effectively in other local tenders and worldwide.

Implementation of the Sakhalin II project positioned Russia as a key player in the strategic market of the Asia-Pacific region and will provide it with an operational footing in the global LNG market.