September 10, 2013 / 12:10 PM / 5 years ago

Russia's Novatek gets China LNG backing, export reforms eyed

MOSCOW (Reuters) - Novatek (NVTK.MM) has secured preliminary backing from leading Chinese banks for its Yamal LNG project, bringing Russia’s largest independent gas producer a step closer to breaking Gazprom’s (GAZP.MM) export monopoly.

With the global trade in liquefied natural gas (LNG) expected to grow by a third in the next five years as the United States and Australia boost production, Russia is under pressure to complete new projects.

The $20 billion Arctic Yamal LNG project would be the first Russian plant built since Gazprom, the world’s top producer of conventional gas, launched its Sakhalin-2 facility in 2009.

Key to unlocking the financing is allowing Gazprom’s rivals to export the super-cooled fuel, and a source familiar with the matter told Reuters on Tuesday that the Russian Energy Ministry had circulated a proposal to that effect.

Novatek, whose largest shareholders are CEO Leonid Mikhelson and commodities trader Gennady Timchenko, said that along with China National Petroleum Corp (CNPC) it had signed a memorandum with Chinese banks on project financing.

China Development Bank Corporation, Bank of China (601988.SS), China Construction Bank (601939.SS) and Industrial and Commercial Bank of China (601398.SS) - the world’s largest bank by market capitalization - will consider actively participating in the external project financing transaction.

Novatek, in a statement, did not specify the size of the financing but said that other financial institutions, including Russian ones, are likely to support the project too.

Yamal LNG, which is being developed by Novatek, France’s Total (TOTF.PA) and China’s CNPC, is scheduled to start producing LNG in 2016 with a view to supplying 16.5 million tonnes of the tanker-shipped fuel by 2018.


Both Novatek and state-controlled oil major Rosneft (ROSN.MM) have secured buyers of LNG from yet-to-be-built plants, but need the ministry’s reforms to be adopted to win financing.

The source told Reuters that the Energy Ministry had finally drafted a proposal that would liberalize exports of LNG and allow companies other than Gazprom to sell abroad.

The proposal would allow LNG exports by companies that hold licenses to build LNG plants, or to send the gas for liquefaction to a plant determined by the government.

    The draft also proposes allowing LNG exports by companies with state holdings of at least 50 percent - if they send LNG abroad from offshore fields or from production-sharing agreements.

    “We expect to see new LNG contracts after the law comes into a force in January 2014,” BrokerCreditService said in a note on Tuesday.

    The Russian authorities had planned to open up LNG exports from 2014, with a requirement that Novatek’s and Rosneft’s projects would ship gas to Asia only and not challenge Gazprom’s exports to Europe.

    Gazprom, despite having agreed on cooperation with CNPC CNPET.UL in 2004, has yet to finalize terms on piping gas to China.

    Rosneft’s planned LNG plant in Russia’s Far East involves Exxon, has an estimated cost of $15 billion and a production target of 2018.

    The Energy Ministry declined immediate comment. Under an existing 2006 law, Gazprom is the only company allowed to ship gas out of Russia.

    Gazprom had earlier said it had discussed the possibility of supplying LNG to China from a planned plant near the Pacific port of Vladivostok.

    Reporting by Katya Golubkova; additional reporting by Denis Pinchuk; editing by Douglas Busvine and William Hardy

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