2015-09-27 20:00:00
CHINA & RUSSIA PROGRESSION
A state-backed Chinese investment fund has bolstered the chances of an Arctic natural gas project in Russia moving forward despite U.S. sanctions, according to the chief executive of Total SA, the French oil giant involved in the project.
Yamal LNG, a $27 billion project on a Russian peninsula jutting into the Kara Sea, has been beset by questions over how to pay for it since the lead partner, OAO Novatek, was hit by U.S. sanctions following Russia's annexation of Crimea last year. With most western financing cut off, the partners have turned to Chinese state banks for $12 billion in loans but none have been approved yet.
The project has become a test of whether complicated, expensive Russian energy developments are possible in an era of stringent American sanctions on the country's oil-and-gas industry.
This month, China's $40 billion Silk Road Fund said it would finance part of the project, a development Total CEO Patrick Pouyanné called "a clear commitment by China" in an interview Wednesday. The price paid for Silk Road's 9.9% stake in Yamal wasn't disclosed.
Silk Road, a state-owned infrastructure fund, couldn't be reached for comment.
Mr. Pouyanné said Silk Road would represent part of China's contribution to the project. It joins Total, Novatek and state-owned China National Petroleum Corp. as partners there.
Mr. Pouyanné said the Yamal partners were still seeking financing from Chinese banks but said he didn't know when they would deliver the loans. Geopolitics will affect the outcome of those talks with lenders, he said.
Yamal LNG is a centerpiece of Russian President Vladimir Putin's plan for Russia to reduce its heavy dependence on natural gas exports to Europe by increasing sales to Asia, in turn cementing Russian ties with China.
Much of Yamal's gas has already been purchased by Chinese buyers.
"This project is part of an intergovernmental agreement between Russia and China," Mr. Pouyanné said.
The Russian government has already lent $1.4 billion from its National Wealth Fund to the project. Mr. Pouyanné said the remaining tranche of around $1 billion would be released "very soon."
The partners are also seeking between $3 billion and $4 billion from Russian banks and up to $5 billion from export credit agencies in Asia and Europe, Mr. Pouyanné said.
In the past six months, Total has increased its stake in Novatek, Russia's biggest independent gas producer, to 18.9% from around 18% previously. Total has an agreement with Novatek to buy up to a 19.4% stake.
Total had halted purchases of Novatek stock last summer following the downing of flight MH17 in July over Ukraine. The U.S. has targeted Novatek co-owner Gennady Timchenko and the company was cut off from long-term financing on U.S. markets.
"We observed the stock was down in the spring and we said why not buy?," Mr. Pouyanné said. "I'm not a politician, I run a company."
Total is one of the top foreign investors in Russia and is counting on projects such as Yamal to lift its oil and gas production by the end of the decade.
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