More gas could ultimately flow sooner through Sempra Energy's underutilized West Coast liquefied natural gas (LNG) terminal following an announcement last Wednesday that Royal Dutch Shell and Russia's Gazprom have signed a series of 20-year agreements in which both will be buying LNG supplies from the eastern Russia Sakhalin II production area. It gives the Russian behemoth its first major entry into the U.S. gas market.

Touted as the start of a number cooperative ventures, deliveries are to begin this year at Sakhalin to units of both Shell and Gazprom. Officials at the Russian company also said in recent weeks "markets where the two companies operate show certain signs of demand growth."

Whether the first shipments make it to North America this year will depend on global gas prices, said an official who did not want to be identified. Depending on international prices, the overall deals could amount to upward of $5 billion in market value, the same official said.

Shell is providing some of its capacity rights at the Sempra Energy LNG receiving terminal and takeaway transmission pipeline along the Pacific Coast in Mexico, and the regasified supplies will be shipped through a Sempra-Mexican-owned gas pipeline and the North Baja pipeline into California. Houston-based Gazprom Marketing & Trading USA Inc. will market the gas.

A Sempra spokesperson said the deal has no financial impact on Sempra's operations. Under its arrangement with Shell, the global LNG supplier holds the rights to half of the capacity going through Sempra's 1 Bcf/d Energia Costa Azul receiving terminal in North Baja California. Sempra still expects its first shipments from Tangguh in Indonesia in the third quarter this year.

Starting this year Gazprom Global LNG and Shell Eastern Trading LTD will buy 1 million metric tons annually of LNG each from Sakhalin Energy Investment Co. until 2028. Gazprom holds a 51% stake in Sakhalin Energy and Shell has 27.5%, so they are essentially buying from themselves.

The two companies separately agreed to a new pipeline supply deal in which Shell will get 2 million metric tons/year from Russia in Europe. "Through this 20-year agreement, Shell will be able to strengthen the diversification and flexibility of its supply portfolio and its marketing position in the European gas market," a Gazprom spokesperson told NGI.

Gazprom's affiliate now has a long-term agreement with Shell to take its Sakhalin LNG capacity through Sempra's Costa Azul plant in Mexico and pipeline capacity from Sempra affiliates to get the gas into Southern California.

"This deal will enable Gazprom to begin shipment of LNG from Sakhalin II to the United States, the world's largest gas market, and other markets of the Pacific Basin, starting from this year, Gazprom Chairman Alexey Miller said. He emphasized that Gazprom has been working for some time on a strategy of reinforcing the company's positions in the global LNG markets.

Miller and Shell CEO Jeroen van der Veer met before the signing of the agreements to discuss other possible LNG collaborations, the two organizations said.

Van der Veer called the latest agreements an "important milestone" in the two company's cooperation, and he said he "looked forward to expanding further our relationship with Gazprom in a variety of activities related to natural gas and LNG developments both in Russia and internationally."

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