YUZHNO-SAKHALINSK, April 9 (RIA Novosti) - Japan's Mitsui & Co., Ltd. put forward a proposal on Wednesday to convert natural gas to ammonia and methanol on Russia's Far East island of Sakhalin.

The Japanese company owns 12.5% in the Sakhalin II oil and gas project, controlled by Russian energy giant Gazprom.

Toshihiro Tanaka, who heads Mitsui's First Chemicals Business Unit, said in a meeting with the local administration: "Sakhalin has unique conditions for developing gas conversion... Your region is optimal for the production of methanol and ammonia, and we would like to work on this issue."

Tanaka said there is currently high demand for these products.

"When setting out a master-plan for using Sakhalin gas two years ago, we factored an ammonia and methanol price of $150-170 per ton, but this price has risen to $250-300," he said.

Valery Pankov, deputy head of the oil and gas department at the local natural resources committee, said all gas from Sakhalin II has been contracted, and that additional gas reserves are only available through the Sakhalin I project.

Sakhalin I, the sister project of Sakhalin II, is controlled by U.S. oil major Exxon. The region is currently negotiating gas supplies for conversion with the Sakhalin I project operator.

Ammonia and methanol production could be established in northern Sakhalin, according to Sergei Alekseyenko, the local administration's chief investment expert. The location has good pipeline and energy access. However, gas chemicals have to be transported by rail to ports on the south of the island.

Recoverable reserves at Sakhalin I have been estimated at 2.3 billion barrels of oil and 485 billion cubic meters of natural gas.