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June 27, Bloomberg. Royal Dutch Shell Plc, the world's third-largest oil company, plans to sell the remaining liquefied natural gas from its Russian Sakhalin-2 project to buyers in Asia, said Jon Chadwick, Shell's top gas executive in Asia.

Sakhalin now has 90 percent of its LNG under contract and will soon sign agreements for the remaining 10 percent, Chadwick, 49, said in a June 22 interview. Shell last month agreed to sell as much as 420,000 metric tons of LNG a year to Tohoku Electric Power.

"We're close to finalizing the contracts'' for the remaining LNG, said Chadwick, executive vice president for Shell Gas & Power in Asia. ``The volumes will remain in Asia.''

The final gas sales, negotiated as rising oil prices and gas project delays have boosted Asia LNG prices, may help compensate for the project's spiraling costs. Developing Sakhalin, which is ice-bound for almost half the year, will cost $20 billion, more than double the original estimates because of rising material prices and higher contractor fees.

Shell's `A' shares rose 0.6 percent to 1,749 pence in London trading at 10:09 a.m. The stock is down 1.2 percent so far this year after falling through most of May.

"The main thing is to recover the maximum amount of revenue, particularly in that project, which was so spectacularly over-budget,'' said Arthur Dixon, former president of LNG marketing at Australia's North West Shelf venture who's now an LNG adviser based in Perth, Australia. "The natural market for Sakhalin is in Asia.''

Japan, California

The Sakhalin-2 project will produce 9.6 million tons a year of LNG from two liquefaction units, or trains, when it starts up in the second half of 2008. Shell has marketed most of the LNG to utilities in Japan and a Sempra Energy-owned receiving terminal in Baja California, Mexico.

"The project is over 75 percent complete now,'' Chadwick said. "We're very pleased with the marketing progress.''

Shell is developing the project on Sakhalin Island, off Russia's Pacific coast with Mitsubishi Corp. and Mitsui Co., Japan's largest trading companies.

China is unlikely to buy the remaining LNG because the nation needs more gas than is currently left on offer, said Ian Craig, chief executive of the Shell joint venture, known as Sakhalin Energy Investment Co., in a March 25 interview in Yuzhno-Sakhalinsk, the island's main town.

The project has room for a third production line.

"Studies are ongoing for a third train but the priority is the construction of the first two trains,'' Chadwick said. "Right now we're on track both in terms of cost and schedule.''

Gazprom Review

Shell agreed last year to swap Siberian energy assets with state-owned OAO Gazprom, to give the Russian company a 25 percent stake in Sakhalin. Both sides continue to examine the offer, which became more complicated after Shell revised its costs.

Gazprom Deputy Chief Executive Alexander Medvedev said on June 8 that the cost review will extend beyond August and may last until the end of the year. Chadwick wouldn't comment on when the review might end.

Asia Supply Gap

Asian liquefied natural gas buyers may face supply difficulties this decade because of delays in projects, said Jane Liao, head of LNG purchasing for Chinese Petroleum Corp., at an industry conference on June 20. Sakhalin-2, BP Plc's Tangguh project in Indonesia and Chevron Corp.'s Gorgon project in Australia are all running behind schedule.

Shell will start drilling before the end of the year the first of 12 exploration wells on a field in the Browse basin off Western Australia, Chadwick said. The company won the bid for the field, WA-371-P, in January. The field is near the Ichthys field where Inpex Holdings Ltd. plans on developing a $6 billion LNG export terminal.

The WA-371-P is the only field that Shell is operating in Australia, he said. Previously, the company limited exploration projects to its 34 percent holding in Woodside Petroleum, Australia's largest oil producer.

"We were very keen on the block,'' he said. "We will be opportunists and we will go for those opportunities when they arise.''

Japan and South Korea remain important LNG markets for Shell, which is the largest international oil company supplying gas to both countries, Chadwick said. The two countries will experience growth in their LNG sales, he said.

"Today in Japan only 13 percent of the energy mix is gas- fired,'' Chadwick said. "I see tremendous upside in that.''

Cross-border trade of natural gas rose 6.1 percent in 2005, outpacing the fuel's overall production growth, according to a June 14 statistical review of world energy by BP Plc, Europe's largest oil company, which cited figures from French research bureau Cedigaz. Global gas production rose 2.5 percent last year, eclipsing oil output growth of 1.3 percent.