YAMAL LNG DESISION
On Monday, Russian Deputy Prime Minister Arkady Dvorkovich told reporters at the intergovernmental energy cooperation commission in Beijing that a multinational deal to launch Russia's Yamal liquefied natural gas (LNG) project will be signed next month. Novatek, Russia's largest independent natural gas producer, owns 60% of the project.
"As for Yamal LNG, all the basic questions have been addressed," he said. "Now all the basic conditions have been agreed on, so we expect the signing to take place in December." He said that discussions over the project's financing and construction dates are underway. Monday's disclosure follows a November 7 statement by Gennady Timchenko, a close ally of Russian President Vladimir Putin and one of Novatek's key owners, who said that the company was in talks with Chinese banks to secure over $10 billion for the Yamal LNG project.
"Given the situation with the sanctions, we will work tightly with Chinese banks. Negotiations are in full swing, it is necessary to agree on conditions," Timchenko said.
The financing problems for the project stems from U.S.-led sanctions against Russia's oil and natural gas sector over Russia's invasion of Ukraine in early 2014. Also, in June the EU extended economic sanctions on Russia until January 3, in a move that media said at the time was "keeping up pressure on Moscow to help resolve the Ukraine conflict."
Since sanctions prohibit Novatek from raising long-term loans from capital markets in US dollars and other Western currencies, the company and its foreign partners — French oil major Total SA and Chinese state-owned China National Petroleum Corp. (CNPC) – -are having to seek more money from Chinese lenders than they had intended. Not only are they forced to raise nearly $10 billion, as mentioned by Timchenko, but to date the project has failed to secure the remaining $15 billion plus needed.
However, the project has considered Chinese funding before, but those efforts have proved problematic. Last month, Reuters, citing two banking sources, said that efforts to secure financing for Russia's Yamal LNG plant had stalled, with the owners baulking at costly Chinese loans.
Even if, or when, the project receives the necessary funding to go forward, it is entering an entirely different LNG market that when the project was first proposed. LNG oversupply is projected to continue to 2020, as more supply hits an already ongoing supply glut with even more new projects coming on-stream from Australia, the US, Mozambique and others by the end of the decade.
However, Russia has little choice than to push through with the project. With the plunge in global oil prices of around 60% since mid-June 2014 and with natural gas prices also off sharply, Moscow desperately needs the funds. The other question to ask is if the market needs the extra gas. That answer, as most things in life, will depend on who you ask. The Yamal LNG project will have capacity of 16.5 million tons of LNG per year. The start of the first stage is scheduled for 2017.
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