Novatek Confirms 2016 Start Date for Yamal LNG

By Ben Priddy, May 16, 2013

WEB EXCLUSIVE, Moscow. Russia's second-largest gas producer, Novatek, confirmed in a teleconference with shareholders this week that it's Yamal LNG project will remain on track to begin commercial operations in 2016, according to a number of Russian press sources. CEO Leonid Mikhelson said that the company plans to finalize future supply contracts with potential customers over the next four months, after a government decision is made on Russian LNG export liberalization. Meanwhile, Novatek continues it's negotiations with international investors for a farm-out of an additional stake in the $20 billion Yamal LNG project.

Mikhelson expects that the Russian government will soon liberalize the LNG export market, RIA Novosti reported. The decision would rid Gazprom of it's current export monopoly and allow alternative gas producers like Novatek and Rosneft to expand their global gas market activities. Energy minister Aleksandr Novak announced mid-April that the Russian government will decide on LNG export liberalization by the end of June 2013. However, Novak stated that there could be some restrictions on foreign supply deliveries.

Gazprom and numerous government officials have expressed concern that LNG supplies from independent Russian producers could compete with Gazprom's pipeline exports to Europe. In early March, Novak stated that the government could restrict LNG deliveries to Europe in order to protect Gazprom's pipeline business. Yet, deputy energy minister Anatoliy Yanovskiy announced in April that the government could settle on creating a new office to coordinate LNG and gas pipeline exports to avoid competition between Russian gas producers on foreign markets, RIA Novosti reported. "Some kind of terms will be required, of course, but I don't think that they will be directed towards concrete markets," Mikhelson said during the shareholder conference week, in reference to potential LNG export restrictions to Europe.

Meanwhile, Novatek continues to negotiate with a number of international investors for a potential farm-out of an additional stake in the Yamal LNG project. Currently, Total is the only international investor in the project, holding a 20-percent minority stake. Qatar Petroleum International (QPI) and Electricitie de France were named as other potential partners, according to Biztass. Reuters reported in March that QPI had "shelved, but not killed" plans to acquire a share of the Yamal LNG project. Last week, QPI and ExxonMobil announced plans to jointly develop the Golden Pass LNG export terminal in Sabine Pass, Texas for potential gas deliveries to the UK starting in 2018. Japanese companies Mitsubishi Corp. and Mitsui & Co., who already own shares in Gazprom's Sakhalin-2 LNG project, have also expressed interest in joining Yamal LNG. "In my view, two more [partners] already exist," Mikhelson said, without revealing the names of the new companies.

The physical location of Yamal LNG enables access to primary gas markets in both Europe and Asia, but the majority of LNG supplies are expected to be delivered to markets in the Asia-Pacific. Future supply contracts will be finalized within the next three to four months, Mikhelson said, according to Biztass, and the company plans announce a concrete start date