ONGC-led consortium in hunt for Yamal LNG project stake

Novatek, which wants to challenge Gazprom as an LNG provider, may choose an Indian consortium for Yamal. Source: Itar-Tass

Novatek, which wants to challenge Gazprom as an LNG provider, may choose an Indian consortium for Yamal. Source: Itar-Tass

Novatek will soon complete its search for investors for the Yamal LNG project. A consortium of ONGC Videsh, Indian Oil Corp and Petronet LNG are competing against Mitsui and Mitsubishi for the remaining 10 percent stake in the project.

Novatek is close to selecting its third partner for Yamal LNG, Vedomosti has learned from two sources close to the project. Two consortia from India and Japan are fighting for the right to buy a 10 percent stake. Negotiations are close to completion, adds one of the Vedomosti sources. “According to our information, the final partner has already been determined, in the near future it will be introduced to the other project participants for approval,” says another one.

One of the two candidates is an Indian consortium comprising of ONGC Videsh Ltd (OVL), Indian Oil Corp (IOC) and Petronet LNG, Nimal Kumar, representative of OVL told Vedomosti, refusing to reveal any further details. In early September, the Indian media reported that this consortium was earlier negotiating for the purchase of 15 percent, but later had to confine itself to a smaller stake.

The second candidate is Mitsui and Mitsubishi, as Vedomosti learned from a Japanese diplomat in the know about the progress of the negotiations. The Russian delegation led by the Minister of Energy Alexander Novak will come to Japan next week for negotiations on the project.

A highly lucrative project

Yamal LNG is a project for the development of the South Tambeyskoye field with proven deposits of 1.3 trillion cubic meters of natural gas and the construction of three lines of a natural gas liquefaction plant (LNG) for producing 5 million tons each per year. The launch of the first line is scheduled for the end of 2016. Yamal LNG should reach full capacity in 2018. Novatek itself has never disclosed the cost of the project. It was estimated at $23 billion by UBS and at about $20 billion by Investcafe.

Novatek has been looking for partners for the project for two years. The first was Total. It bought 20 percent for $800 million. The company will spend $500 million more on the implementation of the project. In summer, Novatek announced that Chinese CNPC would get another 20 percent. The companies are expected to close the deal by December 1, after obtaining the necessary approvals. It is expected that the final investment decision on the project will be made and a contract for gas supply will be concluded with the Chinese partner at the same time, according to Interfax, making reference to Leonid Michelson, co-owner and chairman of the board of Novatek.

Earlier, he said that CNPC would purchase 3 million tons of LNG annually from Yamal. A source close to CNPC has confirmed that the contract with Novatek has been fully approved; only regulatory approval needs to be obtained.

 Given that Novatek wants to retain the controlling stake in Yamal LNG, not more than 10 percent minus 1 share is left for the third candidate. Earlier, a source close to Novatek informed that about 20 companies wanted to purchase this stake. The names of the candidates were not disclosed.

In the summer, Gennady Timchenko, a co-owner of Novatek, told Vedomosti that CNPC “would join the project on the same parameters as Total”. According to him, other participants will join the project on a similar scheme. It turns out that Novatek can get about $1.2 billion for nearly 30 percent of shares of Yamal LNG; in addition, the partners may invest about $750 million into the project.

Novatek is interested in attracting to the project those companies that are interested not only in the production and liquefaction of gas, but also in purchasing it, says Sergey Vakhrameyev, senior analyst at IC Ankorinvest. Based on this assumption, he believes that the Japanese companies have the best chances. Today, this country is the world's largest consumer of LNG. According to BP, Japan imported 87 million tons of LNG In 2012. The last nuclear reactor has been closed in Japan recently, and now the country is badly in need of a replacement fuel,” says Vakhrameyev. The second and third places are taken by South Korea and Spain (they imported 37 million and 16 million tons, respectively). India and China are in the fourth and fifth positions, having imported about 15 million tons of LNG in 2012. However, China is likely to seriously increase its LNG consumption in the future, and may even become a leader on this indicator, Vakhrameyev predicts.

Both Japan and India can import LNG from the Yamal project, but only via the Northern Sea route that is 5,770 nautical miles long, said Nadezhda Malysheva, Director for Development of the Portnews News Agency. The alternative route through the Suez Canal is twice as long – 12,840 nautical miles, and is unprofitable to use, says Malysheva. The problem now is that cargos are transported via the Northern Sea route mostly in summer. However, Malysheva feels confident that this route will become navigable year round in 10–15 years.

Earlier, Viktor Olersky, the Deputy Minister of Transport, said that the volume of traffic on the Northern Sea route would reach 60–70 million tons per year in the 2020s. The main cargos will be “hydrocarbons produced in the North Basin,” Olersky was quoted by Portnews as saying.

Representatives of Novatek, the Ministry of Energy, CNPC, Total, IOC and Petronet LNG would not comment on this information. Their colleagues in Mitsui and Mitsubishi Corporation were not available to journalists.

A source close to OVL told RIR that the Indian government was likely to take the issue up with Russia during the Indo-Russian Inter-Governmental Commission meeting in October.  The Indian consortium stands a good chance since CNPC would likely object to Japanese participation in the project, the source said, adding that India is making a strong pitch to get greater access to oil and gas from Russia. 

First published in Russian in Vedomosti newspaper.

All rights reserved by Rossiyskaya Gazeta.

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