* Output seen above 175,000 b/d in 2016, flat in 2017 and beyond
* Growth to slow as recently launched greenfield’s effect fades
* Gas marketing decision likely in 2017: source
Russia’s Far Eastern Sakhalin-1 project is to raise its 2016 crude output beyond its target level of 8.6 million mt, and keep it at a plateau “as long as possible,” Wayne Warwick, President of Exxon Neftegas Limited, the project operator, told S&P Global Platts in an interview.
The increase to approximately 175,000 b/d on average translates into 3.2% growth on the year, according to Platts calculations.
In 2017, the output is seen flat as the project reaches plateau, he said.
“It’s good news…as we are always battling the natural decline of the fields ” he said, adding that further work at the project would be focused on maintaining crude output at current levels.
This year’s pace of growth will slow along with the diminishing effect of the Arkutun-Dagi greenfield launched in early 2015.
Sakhalin-1 crude production grew 9% last year and nearly 20% in the first half of 2016, according to statistics by the Russian energy ministry’s Central Dispatch Unit.
The project includes three offshore fields northeast of Sakhalin Island, in the Sea of Okhotsk, namely Arkutun-Dagi, Odoptu and Chayvo.
Arkutun-Dagi has reached plateau output of 75,000 b/d, and a planned new well at the field to be commissioned in the near future is to help sustain that level, Warwick said.
Odoptu is producing at full 55,000 b/d capacity with a “minor amount of upside,” as further work focuses on secondary recovery through gas and water injection to maintain well pressure, he said.
How long the level can be sustained will be clear next year, when drilling gives more information on the reservoir, Warwick said. The project’s oldest Chayvo field, launched in 2005, produces the balance of crude. Future works at the field will focus on boosting gas output within Chayvo Phase 2, the last project in development at Sakhalin-1, he said.
Sakhalin-1 exports its crude under the premium-quality, light sweet Sokol blend, trading at a premium to benchmark Dubai, via the mainland De-Kastri loading terminal to the Asia-Pacific, mainly Japan (58%) and South Korea (13%), according to the company.
Crude exports from De-Kastri significantly exceed Sakhalin-1 production as the terminal also handles crude from the nearby Northern tip of the Chayvo field (North Chayvo), developed by Rosneft and producing about 49,000 b/d.
Exports via the terminal rose 12.9% on the year to 221,585 b/d in January-September, according to CDU data.
Sakhalin-1 shareholders include ExxonMobil’s subsidiary Exxon Neftegas and Japan’s Sodeco each with 30% stakes, as well as Russia’s Rosneft and India’s ONGC Videsh with 20% each.
The Sakhalin-1 consortium hopes to accelerate talks on the project’s gas production, which has been stalled for years due to a lack of a decision on how to market the gas, which has no access to gas infrastructure.
“We really are looking forward to deciding on which option we chose. We do not want to study options forever,” Warwick said.
The main options include gas sales to the neighboring Gazprom-led Sakhalin-2 project’s LNG plant, or building a new LNG plant in Sakhalin-1.
“They are both very realistic options. There is no top choice at the moment, these are parallel cases,” Warwick said.
Discussions on potential ways to market Sakhalin-1 gas have intensified recently and a decision might be taken in 2017, a source familiar with the matter told Platts. Warwick declined to confirm the timeframe.
Exxon Neftegas is negotiating terms with the Sakhalin-2 operator, Warwick said, but declined to disclose what his company deemed a fair gas price.
The long-lasting talks between Gazprom and Sakhalin-1 on gas marketing, which have borne no fruit on gas price disagreements, resumed after Gazprom’s nearby Yuzhno-Kirinskoye field — previously seen as a likely feedstock source for Sakhalin-2 third LNG train — came under US sanctions last year.
The Sakhalin-2 project plans to increase its LNG production by 5.4 million mt/year from the current 10.8 million mt/year, with the launch of the third train, tentatively planned for 2021 as it is in the final stage of Front End Engineering Design (FEED) at the moment, according to Gazprom.
On the LNG option, Exxon Neftegas is continuing on the pre-FEED, with the possible launch date roughly slated for 2023 or beyond, Warwick said.
There may also be other gas marketing options the company may look at, he said, declining to elaborate.
Sakhalin-1 has a contract, valid through 2025, to supply up to 3 Bcm/year to the neighboring Khabarovsk region, but actual deliveries have been far lower as local gas demand remains limited.
Chayvo Phase 2 was earlier estimated to add 8 Bcm/year of production, with the project’s total gas reserves estimated at 485 Bcm.