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Chiyoda says focusing on LNG for future growth

Japanese plant engineering company Chiyoda Corp (which is part of the Royal Dutch Shell-led Sakhalin 2 project ) will focus on expanding its core business of building liquefied natural gas (LNG) plants over the next two decades, its chief strategy officer said on Thursday.

Russia, Iran and North Africa will provide the company with the next phase of growth after it won a number of projects in Qatar, Takaharu Saegusa told Reuters in an interview.

"Construction demand for LNG projects is the most robust in the energy sector and our company expects it to last or even increase. LNG is our focus until around 2020-2030."

But rising prices of raw materials may continue to be a challenge for contractors, he said.

The LNG construction sector is booming as demand from consumer countries, especially the US, China and India, is expected to rise sharply. End-users such as electricity producers are shifting to the fuel, which emits fewer greenhouse gases than oil.

LNG demand is expected to increase to as much as 182mn tonnes in 2020 from 87.99mn tonnes, according to research from the Institution of Energy Economics, Japan (IEEJ) in May.

The value of Chiyoda's backlog orders, which show the company's potential future sales growth, has risen to ?1tn ($8.59bn) in the current business year to March 2007, he said. This compared with ?961bn in 2005/06 and ?522bn in 2004/05, the company's fact book shows.

Backlogs related to LNG plants account for nearly 90% of the total value and are mostly concentrated in Qatar, which has the world's third largest gas reserves and aims to be the largest LNG exporter by 2010.

Saegusa said Chiyoda, which is part of the Royal Dutch Shell-led Sakhalin 2 project in Russia's far east, plans to expand in Russia and wants to enter Iran and North Africa.

"Russia has the world's largest gas reserves and many LNG projects will emerge from the country. New projects will come from North Africa," he said.

Iran is currently in dispute with the West over its nuclear ambitions and could face UN sanctions unless it freezes the work by the end of August, but Saegusa said the company wanted to do business there in future.

"Iran is in a difficult situation now but it has the world's second largest gas reserves and we want to target coming LNG projects there."

Natural gas production from the Middle East and North Africa will jump three-fold over the next 25 years, the biggest increase in any region in the world, the International Energy Agency (IEA) said in a report in November 2005.

The biggest increases will be from Qatar, Iran, Algeria and Saudi Arabia, and most of the rise will be in the form of LNG, the IEA said.

Saegusa said Chiyoda would have to safeguard itself against growth in raw materials prices, such as those that partly caused a doubling of costs at Shell's Sakhalin 2 to about $20bn.

© Reuters

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