With Osaka Gas Deal, Virtually All Sakhalin II Capacity Sold

Sakhalin Energy Investment Company Ltd. on Thursday signed a binding Heads of Agreement (HoA) for long term supply of liquefied natural gas (LNG) to Japan. This deal with Japan's fourth largest LNG buyer – Osaka Gas – represents the latest and last agreement for term sales of LNG from Trains 1 and 2 of Russia's first LNG plant. Sales of 98% of the combined future capacity of these two trains are now formalized, effectively selling-out the entire capacity of the foundation project.

Ate Visser, Commercial Director of Sakhalin Energy, and Seishiro Yoshioka, Executive Vice President of Osaka Gas, signed the HoA on 8th February at a ceremony in Moscow. Sakhalin Energy will supply to Osaka Gas about 0.20 million tonnes of LNG per annum for more than 20 years.

Ate Visser said: "Japanese customers represent over 60% of the term sales from Sakhalin LNG. This reflects both the proximity of Sakhalin to Japan, as well as customer confidence in the Sakhalin II project and its shareholders." He also expressed his confidence that, although capacity of the first two trains is now fully committed, LNG demand in the region remains strong and that Sakhalin II has the potential to grow further into a regional LNG hub.

Ivan Materov, Deputy Minister of Industry and Energy of the Russian Federation commented that: "Energy security is one of the key elements of the modern world, and LNG from Sakhalin helps the customers to diversify their supply sources. In the near future Russia's Far East will take its rightful place as a new reliable strategic supplier of energy to Japan and the rest of the Asia Pacific Region."

LNG will be supplied from Sakhalin Energy's new LNG plant, which is in the final stages of construction at Prigorodnoye on the southern tip of Sakhalin Island. The LNG plant is a major part of the Sakhalin II Phase 2 project, and will have two gas liquefaction process trains, each with a capacity of 4.8 mtpa. Currently the works at the LNG plant are over 95% complete, with first deliveries anticipated in 2008. Japan will be the destination for over 60% of Sakhalin LNG, delivered to nine customers across the length of the country. The remainder of the LNG is contracted for delivery to the South Korea and the North America West Coast.