Russia's Yamal LNG to fully market LNG from project, take FID regardless of export rights

Paris (Platts)--22May2013/641 am EDT/1041 GMT


The Novatek-led Yamal LNG consortium's marketing of LNG from the project and final investment decision are not dependent on whether the Russian government would allow companies other than Gazprom to export gas from the country, representatives from Yamal LNG and Total said Tuesday.

"It's important to understand that the question of export rights is not an obstacle [to making the FID], because buyers have committed on the understanding of our Gazprom Export agency agreement," Christophe Malet, deputy director of marketing and shipping at Yamal LNG said on the sidelines of the CIS Oil and Gas Summit in Paris Tuesday.

The agency agreement, which states that Gazprom Export will export LNG from the project on the partners' behalf, was signed in 2010.

Novatek, which holds an 80% stake in the project, and Total, which has a 20% stake, are awaiting a firm decision from the Russian government on whether it would allow independent producers to export LNG from the country.

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Currently, only state-owned Gazprom has the right to export gas, including LNG. Expected deadlines to resolve the issue have come and gone and there is little clarity on if and when the government will take a decision.

Malet said that the company is working on concluding marketing of the project as soon as possible.

"As we speak, about 60% of the project is under serious commitment, covered by heads of agreements or sale and purchase agreements," Malet said.

"There are a number of ongoing discussions for the remaining 40%, which may lead to agreements in the next few weeks," Malet said, adding that the project's focus is towards Asia.

Separately, a source close to the talks told journalists that four of these potential deals were with European companies, including BP and EDF, and four with Asian companies. Among the list of potential customers are some who are interested in an equity stake in the project, Malet added.

"Those buyers looking to take an equity stake are more concerned [about export liberalization] ... as the issue does have consequences for the project's financing," Malet said.

In early February, Russian daily Izvestiya reported that a consortium of banks organizing funding for Yamal LNG plans to seek only up to $5 billion if the law is not changed, citing sources in the energy ministry. If the law is amended, the consortium comprising France's Societe Generale, Russia's Gazprombank and Sberbank plans to seek finance of up to $18 billion.

Novatek representatives had said previously that signing of offtake contracts is conditional on liberalization of exports. Novatek CEO Leonid Mikhelson said in March that future customers were ready to sign contracts for around 80% of LNG from the project in the second quarter if the government moved to liberalize exports. The company recently pushed this deadline back by 2-3 months.

Gleb Luxemburg, general director of Yamal LNG, said at the conference that liberalization of the LNG export market "is not the subject of the FID, that's more technical."

Total's technical director of Exploration and Production for Continental Europe and Central Asia Kevin Boyne added: "We believe that the technical elements of the project are fully feasible."

Boyne conceded that the export of LNG is the most important issue to be resolved, but is "not a dealbreaker."

Novatek representatives said earlier that a final investment decision will be taken this year.

Boyne and Luxemburg added that the project partners' aim of launching the project in late 2016 remains feasible.

"It's a challenging target ... but it's just about feasible and we're still working towards it," Boyne said.

Luxemburg added that all contractors "have agreed to the deadline of 2016."

The second and third trains of the project are to be built over 2013-2017 and 2014-2018, respectively. Each train has a planned capacity of 5 million-5.5 million mt/year.

Yamal LNG is based on the resources of the South-Tambeiskoye field, which includes proven and probable reserves of 907 billion cubic meters of natural gas, as of December 31, 2012, under PRMS standards.

--Rosemary Griffin, rosemary.griffin@platts.com
--Edited by Geetha Narayanasamy, geetha.narayanasamy@platts.com