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Yamal LNG Still Faces Funding Hurdles

Yamal
File image courtesy Total

Published Mar 22, 2016 8:12 PM by The Maritime Executive

Novatek CEO Leonid Mikhelson admitted in an interview Tuesday that the company's Yamal LNG project is having difficulty raising needed funds due to Western sanctions on the Russian oil and gas industry. The firm is affected by U.S. and E.U. sectoral sanctions over Russia's involvement in the Ukraine conflict.

Yamal LNG, located on the Kara Sea in Russia's far north, is expected to cost a total of $27 billion. Novatek holds a majority stake, and the Russian government, French oil major Total, China's CNPC and Silk Road Fund have all made investments. 

Without American or European backing, Novatek has hoped to raise the balance of needed funding from Chinese banks, but with soft energy prices, a growing worldwide supply of LNG and continued sanctions, it has not been able to close these deals as of yet. Nonetheless Novatek expects to secure remaining financing within the first half of 2016, and says that the project's first train will come online next year. 

Yamal LNG has a long time horizon, with debt maturity in 15 years and 16 mtpa of production expected to last twice as long. Novatek says that it is aiming for the long term, and that over the decades Yamal will prove quite profitable. 

"Probably today we should focus on those $30 per barrel [oil prices, to which LNG is pegged] . . .but still the project is implied [to last until] 2045, we focus on credit resources for a 15-year period and even under most pessimistic estimates the project is economically justified and lossless," Mikhelson said, speaking to Rossiya-24 TV.

Tatiana Mitrova at Moscow's Energy Research Institute said it was hard to estimate possible costs for LNG transportation from the project, located beyond the Arctic circle.

According to her estimates, the Yamal LNG price for Europe may be around $5.2 per million British thermal units (mmBtu) and $7.9 per mmBtu in Asia, compared to May delivery in Asia at $4.50 per mmBtu currently.

Novatek says that it has signed long-term contracts for 96 percent of Yamal's LNG production - 86 percent of the total into Asian-Pacific markets, for which the product will have to be shipped via the ice-laden Northern Sea Route.