Page 7 - GLNG Week 18

GLNG COMMENTARY GLNG
Private investor mulls $10bn LNG
project in Russian Far East
A Russian investment group wants to invest $10bn in a planned LNG export terminal
INVESTMENT
WHAT:
A Russian investment group wants to build a 13mn tpy LNG export terminal in the Russian Far East.
WHY:
The project’s developer wants to take advantage of Russia’s loosening of LNG export restrictions.
WHAT NEXT:
The project faces
an uphill struggle given current market uncertainty.
With LNG spot prices falling to record lows of $1.80-1.90 per mmBtu in recent weeks, the timing is far from ideal for investing in new supply.
A private Russian investment group has revealed plans to invest $10bn in an LNG export project in Russia’s remote Far Eastern region of Yakutia.
The announcement comes after Russia’s gov- ernment passed legal amendments last month allowing more projects to export LNG – a move aimed at helping the country reach lofty goals for expanding LNG production over the com- ing decades.
A-Property, owned by Russian-Armenian telecommunications magnate Albert Avdolyan, intends to build a terminal on the Sea of Okhotsk capable of exporting 13mn tonnes per year (tpy) of LNG, Russia’s RBC reported on May 5, citing the group’s representative. First gas is expected in 2025, the newspaper said.
London-headquartered energy services firm TechnipFMC has been hired to design the plant, the spokesperson said, and will finish this task by the end of the year. As of press time, Technip- FMC had not confirmed the deal.
Gas from the LNG terminal will come from fields in western Yakutia operated by Yakutsk Fuel and Energy (YATEC). A-Property acquired the indebted gas producer last year from bil- lionaire Ziyavudin Magomedov, who was jailed in 2018 on charges of racketeering and embezzlement.
A-Property estimates the project’s price tag at over $10bn. This sum will be spent on devel- oping YATEC’s reserves, with a goal of raising the company’s output from a mere 1.7bn cubic metres last year to more than 20 bcm. It will also go towards construction of processing facilities, a 1,300-km pipeline to bring gas to the coast, and development of the export terminal.
The investment group has not disclosed how it intends to raise these funds.
Finding a market
Yakutia, home to Gazprom’s giant Chayandin- skoye gas field, is estimated by Russian geolog- ical surveys to hold as much as 14 trillion cubic metres of initial gas in place. But infrastructure is scarce and the local market for gas is limited, making development a challenge.
Under Russian legislation, only Gazprom is permitted to export gas via pipeline, prevent- ing YATEC and other producers in the region from using the Power of Siberia to ship supplies to China. Independent producers have lobbied for years for this restriction to be lifted, without success.
Russia has recently taken steps to liberal- ise LNG exports, however, and A-Property is
looking to exploit this opportunity.
The government passed legal amendments
last month, loosening restrictions on the num- ber of projects permitted to export LNG. Origi- nally Gazprom also had a monopoly over LNG exports, but Moscow changed the rules in 2013 to allow operators with subsoil licences issued before January 1, 2013 to sell LNG abroad as well, as long as those licences provided for the construction of liquefaction facilities. The gov- ernment has now enabled projects that received licences after this point to ship gas overseas as well.
YATEC does not currently hold licences that provide for gas liquefaction, but A-Property intends to seek permission from the government to export LNG, RBC said.
Russia is eager to open the sector up to invest- ment, as it sets its sights on becoming a top-tier LNG producer within the next decade. Under a new long-term energy strategy approved in early April, the government has raised its target for LNG production in 2035 to 80-140mn tpy, from 70-82mn tpy previously.
What next?
Other projects have also benefitted from the easing of LNG restrictions, including Novatek’s 5mn tpy Obsk project in the Russian Arctic, due on stream in 2024.
According to RBC, A-Property is looking to attract a new equity partner at YATEC to help take the project forward. NewsBase believes it is likely that the investment group will seek a partnership with either Gazprom or Novatek. This arrangement would enable the project to access regulatory and potentially financial sup- port from the state. It would also help the scheme attract international investment.
It is still unclear whether the project will reach this stage, however. Gazprom and Rosneft are also attempting to advance new LNG projects in the Far East in Khabarovsk and Vladivostok respectively. But progress has been extremely slow, amid high cost projections and concerns over whether there is sufficient gas supply.
Furthermore, with LNG spot prices falling to record lows of $1.80-1.90 per mmBtu in recent weeks, the timing is far from ideal for invest- ing in new supply. Gas prices were falling even before the coronavirus (COVID-19) pandemic took hold, as a result of lacklustre demand in Asia and extra LNG coming out of Australia and the US. These market fundamentals remain, even as COVID-19 lockdowns are eased.™
Week 18 08•May•2020 w w w . N E W S B A S E . c o m P7