vlad.tribnet.com / Issue #165 / Business / Reading article...

South Korea’s biggest gas buyer may pave the way for development of Sakhalin’s extensive natural gas reserves, officials announced after recent talks in Seoul.

Representatives of the Korean Gas Co., Korea’s largest gas buyer, met with Sakhalin government officials and Sakhalin Energy leaders at the end of March.

The two sides will begin negotiations to establish Korean Gas as the lead investor in the Lunskoye gas field, located off the northeast coast of the island.

Because gas purchases involve high infrastructure expenses, purchasing contracts usually extend for more than twenty years, said Sakhalin Energy’s marketing director, Hideo Ono. The Korean Gas deal may be worth billions of dollars, he said.

Sakhalin Energy is part of a production sharing agreement for the field development, which is part of the Sakhalin 2 oil and gas project.

The move is a relief to Sakhalin gas suppliers. Sakhalin Energy cannot develop the field unless it has agreements from major gas users to purchase the fuel, a Sakhalin Energy press release said.

And while present figures indicate that the gas market in most of the Pacific Rim is filled, Korea’s interest may lead to annual exports of four million tons of condensed gas to that country alone, according to a Sakhalin Energy memorandum.

Sakhalin Energy president Frank Duffield told reporters that the negotiations were a significant vote of confidence for the entire fossil fuel development effort on Sakhalin.

“With the support of the Sakhalin administration we were able to show how serious our intentions are,” he said. “Our company is ready to ship fuel to Korea on a long-term basis.”

Negotiations with Korea have only passed the first stage, however. The two sides will now discuss price, volume, and timing, as well as conditions that Korean Gas has for the project, Ono said.

Oil companies are set to drill for crude oil off of Sakhalin in 1999, but the Lunskoye gas deposit will not be tapped at least until 2004, Ono said.