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Russia's only LNG plant says to maintain output despite falling demand

By Denis Pinchuk

MOSCOW, Oct (HKSE: 3366-OL.HK - news) 5 (Reuters) - Russia's only liquefied natural gas plant, the Sakhalin-2 project in the Far East (Kuala Lumpur: 5029.KL - news) , plans to maintain production at around 10.8 million tonnes in 2016 despite falling demand from Asia, the firm's chief executive officer said.

"As we have long-term commitments for our customers, we do not plan to cut production", Roman Dashkov, the head of Sakhalin Energy, said in emailed answers to Reuters questions.

Sakhalin Energy is a joint venture between energy giant Gazprom -- which owns a 50 percent stake -- and Royal Dutch Shell (LSE: RDSB.L - news) which has 27.5 percent. Japan Mitsui also has 12.5 percent and Diamond Gas, a Mitsubishi Corp subsidiary, 10 percent.

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Dashkov's comments come against an uncertain backdrop for LNG after Asian LNG prices (LNG-AS) for November delivery slid to $6.60 per million British thermal units (mmBtu), down from $10.10 at the start of the year.

That was partly due to new Australian supply coming on the market and demand remaining subdued.

The outlook means that, in China, energy giants are being forced to sell a glut of he fuel to buyers in other countries .

Dashkov told an industry conference last week that the plant increased production capacity by 1-2 percent, thanks to an upgrade in its first production train this year. A second train is scheduled to be upgraded in the same way.

The firm exported 80 percent of its gas to Japan last year and 18 percent to Korea.

When asked how long low demand could persist, Dashkov said the firm foresaw "a conservative scenario." He cited new LNG volumes expected to be launched in Australia and the United States and the fact that Korea and Japan might restart their nuclear energy plants soon.

"But in the short term it will have no effect on LNG production" (for other suppliers), he said.

"Low oil prices could also prompt potential new LNG suppliers to delay taking investment decisions," he said.

SANCTIONS

Dashkov said U.S (Other OTC: UBGXF - news) . and EU sanctions imposed over Russia's actions in Ukraine would have no impact on plans to build a third production train.

"The project Sakhalin-2 is not subject to sanctions and the project is being commissioned in accordance with a production sharing agreement," he said.

Gazprom's own Yuzhno-Kirinskoye deposit, which is on a U.S. sanctions list, is seen as a resource base for a third train.

A final investment decision on building the third train is expected in the second half of 2017 and it could be launched in 2021. It (Other OTC: ITGL - news) will allow production at Sakhalin-2 to be increased to 15 million tonnes of LNG per year from around 10 million tonnes. Gazprom said last week it was also considering building a fourth production train.

"Co-operation between Russian firms and the key foreign ones will allow us to hit the target (for building the third train)", Dashkov said. (Editing by Andrew Osborn)