Russia offers to sell gas to Saudi Arabia from Yamal LNG

SABETTA, Russia (Reuters) - President Vladimir Putin said on Friday that Russia was ready to sell gas to Saudi Arabia after he launched the first loading of liquefied natural gas (LNG) at the Novatek-led Yamal LNG project in the Arctic.

Russian President Vladimir Putin and co-owner of gas producer Novatek Leonid Mikhelson attend a loading ceremony of the Christophe de Margerie, an ice-class tanker fitted out to transport liquefied natural gas, at the Yamal LNG plant in the Arctic port of Sabetta, Yamalo-Nenets district, Russia December 8, 2017. Sputnik/Alexei Druzhinin/Kremlin via REUTERS

Russia is the world’s biggest gas producer, but most of its exports are via pipeline rather than LNG, a super-cooled fuel that can be transported by ship. It is the world’s seventh biggest LNG exporter.

“Buy our gas and you’ll save oil,” Putin told Saudi Energy Minister Khalid al-Falih, who also attended the launch ceremony in Arctic tundra, according to a report by Interfax news agency.

“If we continue to work the way we do, we will turn from rivals into partners. All benefit from joint work,” he said.

Saudi Arabia, the biggest producer in the Organization of the Petroleum Exporting Countries, and Russia worked together on a deal between OPEC and other producers on cutting oil output until the end of 2018 to curb a global crude supply glut..

Putin and Saudi Arabia’s King Salman, who visited Moscow in October, had agreed on joint investment deals worth several billion dollars, a boost to the Russian economy that has been battered by low oil prices and Western sanctions.

Leonid Mikhelson, ranked Russia’s richest businessman and head of Novatek which has a 50.1 percent stake in Yamal LNG, said on Friday he discussed gas projects with Saudi officials but did not give details.

Yamal LNG, which is 20 percent owned by France’s Total, aims to help Russia double its share of the global LNG market from about 4 percent now by 2020. Qatar is the biggest LNG exporter, with a 30 percent market share.

The first phase of the $27 billion project was completed in December. Other phases are due to onstream in 2018 and 2019.

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The project will eventually have four processing units, known as trains, with total capacity of 17.5 million tonnes a year. Three trains will have capacity of 5.5 million tonnes each and one will have capacity of 1 million tonnes.

“I am confident the second and the third parts of the project will be commissioned ahead of schedule,” Putin said at the ceremony to load the first shipment on to an ice class tanker.

Yamal LNG aims to ship three gas cargoes by the end of 2017 and will start selling fuel under long-term contracts after April 2018, Mikhelson told reporters.

Investments in Yamal LNG were put at risk after Novatek came under Western sanctions over Moscow’s role in the Ukraine crisis. But it found other financing sources.

Chinese banks lent more than $12 billion, while Russia provided 150 billion roubles ($2.5 billion) from a rainy day fund and 3.6 billion euros ($4.2 billion) from state-controlled Russian lenders Sberbank and Gazprombank.

More than 95 percent of output from Yamal LNG for the next 20 years or so has been sold, mostly to the Asia-Pacific region.

Until Yamal LNG was built, Russia had one LNG plant, known as Sakhalin-2, controlled by Gazprom. Shell holds a 20 percent stake in the project on the Pacific island of Sakhalin. It produces almost 11 million tonnes a year.

Gazprom has a monopoly on Russian gas exports by pipeline, but Novatek secured the right to ship LNG abroad.

Novatek is planning another project, known as Arctic LNG, on the Gydan peninsula. Mikhelson previously said Russia might produce more than 70 million tonnes of LNG per year from its remote Arctic regions.

Alongside Novatek and Total, other shareholders in Yamal LNG are China’s CNPC with 20 percent and the Chinese Silk Road Fund with 9.9 percent.

($1 = 59.2725 roubles)

($1 = 0.8503 euros)

Reporting by Vladimir Soldatkin and Oksana Kobzeva; Writing by Vladimir Soldatkin and Denis Pinchuk; Editing by Gareth Jones and Edmund Blair