- Region: Europe
- Energy and Natural Resources
- Overseas Investment Loans
- Project Finance
- Japan Bank for International Cooperation (JBIC; Governor: Koji Tanami) signed today a loan agreement totaling up to US$3.7 billion in project finance*1 with Sakhalin Energy Investment Company Ltd. (CEO: Ian Craig), the project executor, for the Sakhalin Ⅱ (Phase 2) Project off the coast of Sakhalin Oblast, Russian Federation. The loan is cofinanced with a syndicate of the commercial banks, with the syndicate providing finance in the aggregate amount of up to US$1.6 billion.
- Under this large-scale project, Sakhalin Energy, in which Mitsui & Co., Ltd., Mitsubishi Corporation, Gazprom, a state-owned enterprise of Russia boasting the largest natural gas reserves in the world, and the oil giant Shell have equity stakes, undertakes the oil/natural gas development and production in two mining fields of Piltun-Astokhskoye and Lunskoye off Sakhalin Island. The proceeds of the loan will be applied to the construction of a marine platform, construction of oil and gas pipelines, and construction of a Liquefied Natural Gas (LNG) plant. The project is expected to produce around 9.6 million tons of LNG annually, of which more than 50% (equivalent to approximately 8% of Japan's total LNG imports) will be delivered to Japan. With regard to crude oil, around 150,000 barrels will be produced per day (equivalent to some 4% of Japan's total oil imports) under the project, of which a substantial percentage will be supplied to Japan.
- Given Japan's heavy reliance on the Middle East for energy resources, this project is expected to contribute to the diversification of energy suppliers for Japan. Especially with regard to LNG, the supply from Indonesia, one of the largest suppliers for Japan, is projected to decrease considerably over the coming years, and expectations are running high for this project to newly assume the status of major supplier. The project is therefore considered to play an important role in attaining Japan's policy goal of securing a stable supply of energy resources. Furthermore, located in Russian Far East, the project has the geographical proximity to Japan, and thus greater implications in terms of Japan's energy security. Taking these project effects into considerations, JBIC has decided to support this project through the provision of the loan.
- Mitsui & Co., Ltd. and Mitsubishi Corporation have held interest in this project for many years (combined total: 22.5%), and have engaged in large-scale energy resource development jointly with Gazprom (50% plus 1 share) and Shell (27.5% minus 1 share). JBIC supports Japanese firms' overseas resource development operations through the provision of this loan. Since Gazprom, Russia's state-owned enterprise taking pride in the world's largest natural gas reserves, takes part in this project, JBIC is expected to strengthen ties with a natural gas-producing country through assistance activities, thereby contributing to the securing of Japan's energy resources.
- Since the project is located near Hokkaido, stakeholders in Hokkaido have expressed concerns over possible project impacts on the environment. In an effort to ensure that these concerns are reflected in the measures (including the oil spill response) which will be taken due to environmental and social considerations, JBIC has been working with Sakhalin Energy, and will continue to do so through the monitoring of the project for the coming years.
- In celebration of the signing of the loan agreement, JBIC received the following comments from stakeholders of this project:
Mitsui & Co., Ltd.
I firmly believe that the Sakhalin Ⅱ Project, the first LNG project in Russia, will make a large contribution to energy security in the Asia and Pacific region, including Japan, and that the signing of this loan agreement will pave the way for the further development of the Japan-Russia relationship. I would like to express my heartfelt gratitude for the hard work and perseverance shown by the banking syndicate lead by JBIC, Sakhalin Energy, LNG buyers, Gazprom, Shell, Mitsubishi Corporation, and all parties concerned, which have made this signing possible.
(Mr. Shoei Utsuda, President and CEO, Mitsui & Co., Ltd.)
The latest signing of the loan agreement has great significance for the Sakhalin Ⅱ Project, and, as a shareholder of Sakhalin Energy, our company welcomes the signing. Mitsubishi Corporation will continue to make its utmost efforts, along with other shareholders, to help Sakhalin Energy grow and obtain sufficient confidence of users and stakeholders as an energy supplier.
(Mr. Yorihiko Kojima, President and CEO, Mitsubishi Corporation)
Hokkaido Fisheries Environmental Centre
Congratulations on the signing of the loan agreement totaling US$3.7 billion between JBIC and Sakhalin Energy. The Sakhalin Ⅱ Project will play an extremely significant part in both Japan's energy security and the future development of Japan-Russia relationship. We would like to pay respects to the decisive step that JBIC has taken for the project. On the other hand, it is undeniable that the implementation of the oil and gas development project in Sakhalin, an immediate neighbor of Hokkaido, will entail negative impacts and risks for local populace. Residents engaged in fishery in Hokkaido, including staff of this headquarters, are seriously concerned about oil spills and other accidents, which could happen due to troubles in the peripheral facilities or during transportation of crude oil and LNG in the coastal water body off Hokkaido, since shipping would intensify to an unprecedented level as the project progresses. Against this background, it is truly heartening for us to know that JBIC, in the capacity of a responsible governmental financial institution, has decided to assume a position, as a major lender, of using appropriate and official leverage on the project. We have high hopes that JBIC will pay sufficient attention to our concerns, provide guidance and supervision to Sakhalin Energy, the project executor, and make appeals to relevant government agencies.
(Mr. Masao Hirano, Chairman)
This project has been implemented in a phased manner, with Phase 2 following Phase 1. JBIC provided a loan totaling US$116 million to finance the Project Phase 1 (December, 1997). The proceeds of the loan were applied to crude oil production at the simple maritime production facility in the Astokhskoye structure. Production started in July, 1999, albeit only during the summer season, recovering 90,000 barrels per day at the peak time.
- *1 Project finance is a loan scheme which relies mainly on the project's cash flow as the security for repayment.