Russian LNG projects prepare to battle
Yamal LNG to challenge Gazprom's Shtokman plans; Total-Novatek deal follows Shell's Sakhalin-2 talks
Total is set to secure a stake in Yamal LNG, in northwest Russia, giving the export project enough traction to possibly muscle out Gazprom's much delayed Shtokman LNG plans. The deal further highlights the majors' desire to develop Russian LNG.
Both LNG projects are likely to compete for the same customers in the European and North American markets, so the boost given by Total's $4bn deal for a 12% stake in Novatek – including 20% of the Russian independent's Yamal LNG plant – is a blow to the probability of Gazprom's Shtokman development becoming a significant LNG exporter.
"Yamal does seem to be taking precedent now, perhaps Shtokman will be a future swing LNG supplier," says Andrew Neff, senior energy analyst at IHS Global Insight.
The Yamal LNG project is based on 418bn cubic metres (cm) of gas reserves around the Yamal peninsula, with the liquefaction terminal producing 5m tonnes a year (t/y) of LNG in 2016 and up to 15m t/y by 2018.
France's Total is set to become a strategic partner, with Novatek retaining a 51% stake and the remaining 29% held by Gennady Timchenko, the owner of oil trader Gunvor, and his partner Pyotr Kolbin. Total estimates Yamal LNG will cost around $20bn, although some analysts put the price nearer $30bn.
"The announcement is medium-to-long-term positive for Novatek: not only does it greatly increase the credibility of the Yamal LNG project, but it also gives the project a major international shareholder," says Pavel Sorokin, senior analyst at Alfa Bank.
Gazprom's 7.5m t/y Shtokman LNG project, on the Barents Sea, has been subject to a number of delays resulting from demand uncertainty in the wake of abundant shale-gas discoveries and production in the US. This has raised the possibility of the LNG component of the project being scrapped, although this was denied last month by the state-controlled company's deputy chief executive, Alexander Medvedev. "I can't even imagine in the most-scary dream that Shtokman will be built without LNG," he told an investors meeting.
The final investment decision on the pipeline element of the Shtokman development is due this month. Gas production and pipeline exports, through the Nord Stream link to Germany, are expected in 2016 and first LNG is set for 2017.
Although Gazprom remains confident in Shtokman, project partner Statoil believes the development faces serious challenges, according to a US embassy cable leaked to Wikileaks and published in early January. "[Statoil chief Helge] Lund said he was very worried about corruption and opined that it is worsening," said the cable by US ambassador Barry White from December 2009.
Lund also told White: "The project faces a number of other serious challenges, including a lack of local infrastructure, combined with local-content rules; risk of continuing low gas prices, thanks to the impact of shale gas discoveries; and overall political risk."
Statoil has a 24% stake in the company developing the 3.9 trillion cm Shtokman field, while Gazprom holds 51% and Total the remaining 25%. Total's involvement in both Yamal and Shtokman could mean it has some influence over which project is developed. But to further complicate the matter, Gazprom also holds a 10% stake in Novatek, the company trying to develop Yamal LNG with Total.
Where there's a will ...
"Gazprom is also a shareholder [in Novatek]," Russian deputy prime minister Igor Sechin, said at the signing of the Total-Novatek deal. "We'll find some way to make [LNG exports] work."
The Total-Novatek deal follows Shell's attempt to expand capacity at Russia's existing LNG-export project, the 9.6m t/y Sakhalin-2, by 50%. Shell has offered project-operator Gazprom assets in the Asia-Pacific region in return, according to reports, and is thought to be eyeing LNG sales to China with the expansion.