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Wed, Nov 03, 2004 - Page 12 News List

ExxonMobil in talks with China, Japan says

ENERGY SUPPLY Although it had previously planned to sell all the natural gas from its Sakhalin-1 project to Japan, ExxonMobil is reportedly in negotiations with China


ExxonMobil is to talk with a Chinese firm to sell natural gas from a massive project on Russia's Sakhalin Island despite an earlier plan to export it to Japan, Japanese Trade Minister Shoichi Nakagawa said yesterday.

Nakagawa said ExxonMobil chairman and chief executive Lee Raymond visited him Monday to say there was at least another party to negotiate with.

"I understand he meant to say [ExxonMobil] will negotiate with China while continuing negotiations with Japan," Nakagawa told reporters.

Nakagawa said Raymond had stopped short of naming any specific country to him but mentioned China at meetings with other people.

The minister added it was "not right to say that they have decided on China or that [a supply plan to Japan] was scrapped."

Energy issues are becoming increasingly thorny for China and Japan, both major importers of oil and gas, as well as regional rivals who are wooing Russia over a major Siberian oil pipeline project and who have clashed over conflicting claims when prospecting in the East China Sea.

The Nihon Keizai Shimbun reported that ExxonMobil, leading the Sakhalin-1 project on Russia's Pacific Ocean coast, has been talking to China National Petroleum Corp, one of the top Chinese oil companies.

It hopes to seal an agreement by early next year to build a pipeline linking the island and northeastern China with shipments beginning in 2008, the business paper said.

Such a deal could have a huge impact as the Sakhalin-1 project had initially planned to sell all of its natural gas output to Japan via a direct 1,500km pipeline, it said.

Construction of the pipeline to Japan has been delayed because of the lack of progress in talks on compensating the fishing industry, it added.

Moreover, Tokyo Electric Power, which was expected to become the largest buyer of the gas, has been reluctant to sign off on the deal, it said.

Japan's largest electric power generator is also concerned about the expected slack growth in demand and the inflexibility of being locked into a long-term contract, according to the daily.

Japanese participants in the project will still be able to receive their shares of the profit even if the gas is sold to China, the newspaper added.

A Tokyo Electric spokesman said the company considers the Sakhalin-1 project "one of the candidates as a fuel provider for us over the medium and long-term.

"At the moment, however, we are not in the stage of entering concrete talks [on purchasing gas from Sakhalin-1] as many issues are yet to be solved," he said, citing as one issue the feasibility of laying the pipeline to Japan.

Japan is one of the key backers of the Sakhalin-1 and Sakhalin-2 oil projects, which have attracted about US$22 billion in investment.

ExxonMobil leads the Sakhalin-1 project with a 30 percent stake. Another 30 percent is held by Japanese trading house Itochu, the government's Japan National Oil Corp and affiliate Japan Petroleum Exploration Co.

Tokyo Electric and Toho Gas have already agreed with the Sakhalin Energy consortium led by Anglo-Dutch oil giant Shell to buy liquefied natural gas.

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