Gazprom to Build Refinery in Sakhalin Island

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Mar. 11 – Russian gas monopoly Gazprom is looking to build its first refinery in Sakhalin Island where most large oil international corporations have been producing crude for export in multibillion-dollar projects, Deputy Chairman of the company’s Board of Directors Alexei Miller said.

By the end of this year, the company plans to wrap up the drafting of an investment proposal for the refinery, Miller said in a meeting with Sakhalin Governor Alexander Khoroshavin.

“Sakhalin-3 is Gazprom’s most promising Sakhalin project that could use a refinery,” Alexander Shtok, an expert with the 2K Audit-Business Consultations firm, said to The Moscow Times.

It was unclear when Gazprom would produce the first oil at Sakhalin-3, where its Kirinsky bloc alone holds an estimated 600 million to 700 million tons of crude oil – enough, Shtok said, to keep any refinery busy.

An industry source familiar with the matter said it was unlikely that crude for the refinery would come from either Sakhalin-1 or Sakhalin-2, international oil and gas projects in the northeast coast of the island led by Exxon Mobil and Gazprom respectively. Gazprom inaugurated Sakhalin-2, a US$22 billion LNG project, in February 2009.

Shtok said Gazprom was most likely to secure its own resource base for the plant.
Sakhalin crude output may grow to 23 million metric tons from 15 million tons by 2020, local authorities informed at a conference in September.

The parties discussed the issues of cooperation between Gazprom and the local authorities within the Eastern Gas Program. In particular, the meeting touched upon progress in constructing the 1,800 kilometer Sakhalin – Khabarovsk – Vladivostok gas transmission system, which Gazprom needs for Sakhalin-2. The project estimated to hold 1 billion barrels of recoverable oil and 500 billion cubic meters of gas.

The Sakhalin – Khabarovsk – Vladivostok pipeline is now under construction (completion projected for late this year or early next), for liquefaction and export to Japan.

Consideration was also given to the regional gasification projects. Recently Gazprom has completed testing of the linear part of the inter-settlement gas pipeline linking the Dalneye GDS (Gas Delivery System) with CHPP-1 (Combined Heat and Power Plant) in island capital Yuzhno-Sakhalinsk.

The company is also constructing an inter-settlement gas pipeline from the Dalneye GDS to the Novo-Alexandrovsk settlement and designing new gas laterals. Company plans to allocate around US$22.3 million for the Island gasification in 2011.

The gasification level in the Sakhalin Oblast stands at 8.4 percent while Russia’s average is 63.2 percent.

Most of the region population lives in the southern half of the island, centered mainly around Yuzhno-Sakhalinsk, a city of about 175,000, and two ports, Kholmsk and Korsakov (population about 40,000 each).

Total hydrocarbon deposits around Sakhalin are estimated to contain 14 billion barrels of oil and 2.7 trillion cubic meters of natural gas.

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