GE Oil & Gas (NYSE: GE) has received a 16-year service contract extension valued at $333 million for Sakhalin-2, one of the world’s largest integrated oil and gas projects that operates in the harsh subarctic environment of Sakhalin Island in the Russian Far East. The agreement underscores GE’s commitment in local resources and a local workforce for the facility, which delivers economic benefits for both the Sakhalin region and all of Russia.
The service agreement was announced today during the Russia Power event in Moscow, where GE also announced the signing of a memorandum of understanding (MOU) with the Sakhalin provincial government to work together in developing power generation projects to meet the future energy needs of Sakhalin Island. The MOU covers a wide range of GE technology options, including aeroderivative gas turbines, gas engines, coal gasification and wind power.
The service contract extension covers four GE Frame 7EA gas turbines that drive the process trains for Sakhalin’s liquefied natural gas (LNG) plant—the first of its kind in Russia—and five GE Frame 5 gas turbines that are used for electricity production at the site.
Sakhalin Energy, a partnership that draws upon global oil and LNG expertise and experience, operates the project under a production sharing agreement with the Russian Federation. LNG is produced using technology that was developed by Shell to ensure maximum production during severe Sakhalin winters. The production capacity of the plant is 9.6 million tons of LNG per year, most of which is exported to Korea and Japan.
The extension to the Sakhalin Energy-GE contractual services agreement (CSA) for maintenance and services on Sakhalin Energy’s LNG plant gas turbines has been approved by Sakhalin Energy’s shareholders and Russian stakeholders. This adds two cycles to the existing CSA, will deliver more production availability and represents a significant commitment to the use of local content.
The GE service agreement includes planned and unplanned outages, parts and repairs, an availability guarantee, remote monitoring and diagnostics and an on-site GE team of technicians. The agreement will be supported by GE’s technology and services center in the Kaluga region of Russia.
“The current service agreement was scheduled to end in 2016, and the 16-year extension is testament to our ability to deliver technological innovation and guarantee availability under the most challenging circumstances,” said Girish Saligram, head of contractual services for GE Oil & Gas’ Global Services business. “While Russia continues to invest in the industry, few customers wish to engage in long-term partnerships; but Sakhalin Energy recognizes the value of such a relationship.”
Both the federal government of Russia and the Sakhalin Oblast (regional government) benefit from taxes paid by Sakhalin Energy, with funds used for infrastructure upgrades including roads, ports, railways, hospitals, airports and waste management. The project also creates new jobs, develops local skills and introduces new technology to the Sakhalin region.