Sakhalin Energy said on Friday it agreed to sell Tokyo Gas Co 1.1 million tonnes a year of liquefied natural gas (LNG) for the next 24 years, marking the project's first full sales and purchase agreement (SPA). The deal finalises an agreement in principle that the two firms had signed in May 2003. Sakhalin Energy will start supplying LNG to Japan in November 2007, the group's chief executive, Ian Craig, said in a statement.

Tokyo Gas said it decided to buy LNG from the Royal Dutch/Shell-led Sakhalin II project, based on an island in Russia's Far East, because of its proximity to Japan.

"The shipping cost from Sakhalin is much cheaper (than from elsewhere)" a Tokyo Gas spokesman said. A spokesman for Sakhalin Energy said the deal was worth about $3 billion over the life of the contract.

Japan's biggest gas distributor, Tokyo Gas currently buys about 8.2 million tonnes of LNG from suppliers such as Malaysia and Indonesia. Sakhalin II is Russia's largest ever foreign investment.

Copyright Reuters, 2005