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Russia advances Asian LNG ambitions

27 Jun 2013 16:12:09 | glm

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Russia's efforts to expand its presence in the Asian LNG market took a major step forward at the St Petersburg International Economic Forum on 21 June after Russian state-owned oil firm Rosneft, independent natural gas producer NOVATEK and gas incumbent Gazprom each signed deals to advance their respective liquefaction projects as President Vladimir Putin reaffirmed the government's commitment to end state-controlled Gazprom's LNG export monopoly.

"The increasing opportunities in the Asia-Pacific market, where LNG consumption is expected to double, allow us to make a decision on the gradual liberalisation of LNG exports," Putin said in his keynote speech to the forum.

The government has yet to issue a finalised LNG export mechanism or detail whether developers will be able to market LNG to Europe, where it could indirectly compete with Gazprom's pipeline exports, but the renewed support for greater competition for Russian developers targeting Asia effectively opened the door for Rosneft and NOVATEK to announce their own landmark LNG export deals.

Rosneft lines up partners

Rosneft initially unveiled its LNG export ambitions in February, joining US major ExxonMobil to conduct a feasibility study into a proposed liquefaction plant in the Russian Far East. And the state company advanced those ambitions on Friday, signing heads of agreement (HoA) with commodities trader Vitol, Japanese trading house Marubeni and Japanese consortium Sakhalin Oil & Gas Development Company (Sodeco) all lining up and effectively completing the marketing for the first 5mtpa train.

The HoA with Vitol will see the Switzerland-headquartered company lift 2.75mtpa on a free on board (FOB) basis from the first train, currently expected to come on stream in the first quarter of 2019. Neither ExxonMobil nor Vitol has specified the exact supply source for the liquefaction project, although it is widely expected that it will underpin the first phase of the project with reserves at the ExxonMobil-operated Sakhalin-1 consortium in which Rosneft and the Sodeco venture are partners.

Sakhalin-1 has delivered some gas to the local Khabarovsk region, and was long considered a potential source for Gazprom's planned export projects in the Russian Far East. But protracted negotiations between ExxonMobil and Gazprom repeatedly run aground because of commercial terms, opening the door for Rosneft to partner with ExxonMobil for the rival LNG project.

The agreement with Sodeco - a consortium comprising Japan's Ministry of Economy, Trade and Industry (50%), JAPEX (15%), Itochu (18%), Marubeni (12%) and INPEX (6%) - will see the Japanese venture purchase 1mtpa from 2019, with Marubeni independently lining up for the remaining 1.25mtpa from the initial train.

CNPC joins Yamal LNG

NOVATEK, Russia's leading independent gas producer, also unveiled its long-awaited sales and equity deal with China National Petroleum Corp (CNPC) for its planned 16.5mtpa Yamal LNG project in the Russian Arctic.

Under the terms of the framework agreement, CNPC has agreed to acquire a 20% stake in the project and purchase at least 3mtpa from the project, bolstering NOVATEK's efforts to sanction the scheme this year and meeting its target of bringing the first train on line by the end of 2016.

Yamal LNG currently has a number preliminary sales agreements with Asian and European buyers, and is expected to convert these into firmer agreements over the coming months as it secures project financing to cover the estimated $18m-20m of development costs (see GLM 23 May 2013).

While financing the development of an export plant in a remote part of northwestern Siberia has long been touted as challenging, the CNPC agreement adds further momentum behind the project, with the company set to provide "active assistance in organising ... external financing for the project from Chinese financial institutions", NOVATEK said in a statement.

The 20% Yamal LNG sale to CNPC is expected to be closed by 1 October 2013, according to NOVATEK, which would consequently see its stake in the project reduce from 80% to 60%. The company has indicated that it wanted to eventually reduce its stake down to 51%, although it is not clear whether the remaining sales accords include an equity component for the remaining 9%.

French energy major Total, which holds the remaining 20% stake in Yamal LNG, meanwhile, increased its interest in NOVATEK itself to 16% on 26 June.

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