Second Yamal LNG Project Finance Undecided
Novatek's second LNG project, Arctic LNG 2, is at the front-end engineering and design phase, finance director Mark Gyetvay said at the Fourth Russian Energy Forum in London June 22, but he said it was premature to say whether it would be financed the same way as the Yamal LNG project which initially depended on Russian and Chinese state financing. It could be similar, he said, but "widened out."
US sanctions, in response to the Russian-backed conflict in Ukraine, blocked US lenders from contributing to Yamal LNG, the first cargoes of which are expected to leave the terminal late this year.
As a result the Russian and Chinese governments ended up footing a part of the costs, the Kremlin further assisting in the development of a major dedicated port at Sabetta, where some 30,000 staff are putting the finishing touches to the first of the three planned trains, each of 5.5mn metric tons/year.
A number of European banks and export credit guarantee agencies have since lent to the first Yamal LNG project, which will have taken just four years to reach first cargoes if it makes the Q4 2017 target, Gyetvay said, describing this as an "exceptional performance." The final investment decision (FID) was taken in December 2013.
Since sanctions, US-Russia relations have worsened further – with the Republicans keen to show there is no Kremlin influence in the White House, as one speaker joked – and Russia has had to develop its own high-grade technology in response to the last wave of sanctions. This has led to the idea of onshoring the construction of plant for the second LNG project at Novatek's Kola plant in Murmansk in northwest Russia, which would save on other costs too such as shipping, and knock 30% off the cost of the plant compared with the $27bn Yamal LNG plant that was built in Asia and assembled in Yamal.
The focus on cost cutting results from the fall in oil prices: when the FID was taken oil was around $100/barrel and gas was expected to be priced at between $10/mn Btu and $14/mn Btu. Now oil is below $50/b and LNG markets are depressed.
Train 1 of Yamal LNG was 93% complete as of mid-June, Total's vice-president country delegate for Russia Olivier Vaquie told the conference earlier. Vaquie said another cost-saving measure being looked at was using a gravity-based system, involving three barges floating in the River Ob, rather than sinking piles into the subsoil to support the modules, in a way that did not disturb the permafrost – the method used at Yamal LNG.
The first ice-breaking LNG tanker, Christophe de Margerie, delivered in March, has outperformed its design capacity, said Gyetvay, although details were not given. In all there will be 15 such tankers for the winter route and 12 standard tankers for taking LNG to Asian markets in summer or from the Zeebrugge LNG terminal in winter.