China's Yamal Involvement Sends Interesting Signals
When CNPC farmed into the Yamal LNG project obtaining a 20% interest it added colors to the ostensibly non-feasible Arctic project. And when a pool of Chinese banks agreed to participate in financing this project the LNG venture of Novatek and Total became even more interesting to watch.
The Chinese have never made a mistake in their slow but assured penetration into the Russian oil and gas industry. The tactic was to wait for a good opportunity in ambush and then jump out and make an offer the Russians could not refuse.
They did it in 2004. Rosneft accepted a loan of $6 bln from Chinese banks to pay for assets of dismembered Yukos (nobody else would have agreed to help the Russian government-owned company to buy ‘stolen goods’ at that time.) The friendly assistance fetched China a lucrative contract for oil supply at reportedly soft prices.
They did it again in 2006. Rosneft wanted to take over Udmurtneft, a producing unit of TNK-BP, but had no cash to pay for the asset. Sinopec was allowed to buy it after promising to cede a controlling interest to Rosneft, to be paid for out of future revenues. It was really a coup because very few people in Moscow liked the idea of a Chinese company running an upstream asset in the heart of Russia.
And they did it in 2009, when $25 bln from Chinese lenders saved Rosneft from bankruptcy and enabled Transneft to complete the ESPO pipeline—and Chinese oil consumers received guarantees for another 20 years of uninterrupted oil supply from Russia.
It would be naïve to assume that Beijing is entering a feebly justified project on the Yamal Peninsula without a hidden goal in mind. After all, there are much closer and warmer locations of gas production available to China, with cheaper LNG in them.
The project of Novatek, Total and CNPC still faces a big snag because it is already a potential threat to Gazprom, which remains a sacred cow to the Russian leadership. Yamal LNG cannot send its production directly to China and other Asian markets because the northeastern passage in Arctic waters is not navigable for more than four months a year.
Defying Vladimir Putin’s direct orders not to obstruct Gazprom’s trade, the initiators of the project have shortlisted Dunkirk in northern France and Zeebrugge in Belgium as a transshipment facility for reloading LNG from ice-class shuttle tankers to larger ones on their way to Asia, but ‘transshipment’ seems to be just a pretext. Gas from Yamal will evidently be offloaded in Europe—even if a swap scheme is employed with suppliers to Asia—and compete with Gazprom’s contracts for pipeline deliveries.
The Chinese may be driven by anticipating a dramatic change in the attitude of Moscow toward Gazprom and its gas export monopoly. Or they may be seeking even the slightest opportunity to get a toehold in Arctic, considering the huge potential of the area as a source of oil and gas and as a short route of global trade. Whatever the real rationale of the involvement, the activity of Beijing in the north or Russia sends interesting signals to other investors and policy makers.
Mikhail Krutikhin
Published with the kind permission of RusEnergy. Mikhail Krutikhin is with RusEnergy, an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine.