September 5, 2016 / 11:15 AM / 2 years ago

Russia's Yamal LNG project on track and on budget, says Novatek

* Yamal LNG project to cost $27 bln in total

* Financing issues fully resolved - Novatek CEO

* Future LNG projects should not require state funds - Mikhelson

By Oksana Kobzeva

VLADIVOSTOK, Russia, Sept 5 (Reuters) - Russia’s Yamal LNG project, to build the country’s second gas liquefaction plant, is on track and on budget with Novatek and its partners having invested $18.5 billion so far, Novatek’s CEO said.

The first phase of the project, in which Novatek is in partnership with France’s Total and China’s CNPC and the Silk Road Fund, is due to start operation some time next year and Novatek’s chief executive said it was 76 percent ready.

Russia is the world’s biggest producer of conventional gas after the United States but wants to increase its production of liquefied natural gas (LNG), which currently accounts for less than 5 percent of world output.

Investment in the Yamal project, which will require $27 billion in total, was at risk after Novatek came under Western sanctions over Moscow’s role in the Ukraine crisis, but the project has since secured funding from Chinese and Russian banks, as well from the Russian government.

“To date, we have resolved all issues related to Yamal LNG’s financing,” Leonid Mikhelson, Novatek’s chief executive and a major shareholder, told reporters in comments cleared for publication on Monday. “In my opinion, we should implement similar projects on our own, not using (Russia state) budget financing in the future.”

The Yamal facility will have three production lines when it is completed, each with an annual capacity of 5.5 million tonnes of LNG.

In April, Yamal LNG signed loan deals with Chinese banks worth over $12 billion. It also secured Russian state funds worth 150 billion roubles ($2.3 bln) from a rainy day fund and 3.6 billion euros ($4 bln) from state-controlled Russian lenders Sberbank and Gazprombank.

RISING COMPETITION

Russia currently operates just one LNG plant, on the Pacific Island of Sakhalin, led by Gazprom, with an annual capacity of around 10 million tonnes.

Sakhalin-2 plans to expand to add a third production line with 5 million tonnes of annual capacity some time in the future. The United States, Qatar and Australia, however, are also all expanding LNG production.

Novatek, Russia’s second biggest producer of conventional gas, plans to commission its second LNG project, Arctic LNG-2, by 2025 with planned LNG production of up to 16.5 million tonnes a year.

Mikhelson declined to give a cost estimate for Arctic LNG-2 project and said that Novatek was not in a hurry to choose partners for the project.

Japan Bank for International Cooperation (JBIC), which has signed up to help finance the Yamal project, is also ready to support the Arctic LNG-2 project, he said. ($1 = 64.7225 roubles) ($1 = 0.8958 euros) (additional reporting by Olesya Astakhova; writing by Katya Golubkova; editing by Dmitry Solovyov and Susan Fenton)

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