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Russia Inaugurates Yamal LNG Plant In Arctic, Set To Increase Gas Export Market Share

By Fuad Mukhtarli December 13, 2017

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With a 20 percent share in Yamal LNG, France’s Total aims by 2020 to help Russia double its share of the global LNG market from its current four percent / Total

Russian President Vladimir Putin launched on December 8 the first loading of liquefied natural gas (LNG) at the Novatek company-led Yamal LNG - a brand new facility in the port of Sabetta, located in the Yamal Nenets district of Arctic Russia.

“I congratulate you all, the entire team of Novatek - all those who worked on this project, and all those who have just got on-board and are now working, on this wonderful occasion, the first loading of the gas carrier, a new tanker named after our friend Mr. Christophe de Margerie,” Putin said, according to a press release issued by the Kremlin.

“He was one of the pioneers of this project, but we have a tanker named after him,” President Vladimir Putin told a ceremony of first tanker loading under Yamal LNG project. The first LNG ship, named the Christophe de Margerie after the Total CEO who died in an air crash in Russia in 2014, is the first of 15 purpose-built craft ordered for the project.

Although Russia is the world’s biggest gas producer, it is ranked the seventh biggest LNG exporter globally, with Qatar leading LNG exports with a 30 percent market share. Russia exports most of its gas via pipeline rather than LNG, a super-cooled fuel that can be transported by ship.

With a 20 percent share in Yamal LNG, France’s Total aims by 2020 to help Russia double its share of the global LNG market from its current four percent. Alongside Total and Novatek, which holds 50 percent of the shares, China’s CNPC and Silk Road Fund hold 20 and 9.9 percent respectively.

The first phase of the $27 billion project was completed this month, and other phases are planned to come online in 2018 and 2019. The facility will eventually be able to process 17.5 million tons annually, with each of the three phases developed, known as trains, having a capacity of 5.5 million tons each.

“I am confident the second and the third parts of the project will be commissioned ahead of schedule,” Putin said at the ceremony.

The Yamal LNG plant will start selling fuel under long-term contracts after April 2018, Novatek CEO Leonid Mikhelson told reporters.

Over 95 percent of Yamal’s LNG output for the next 20 years has already been sold, and buyers from the Asia-Pacific region account for 54 per cent of the company’s contracted output. The remaining balance is being sold to Europe.

On Friday, Putin announced he was ready to make deals to supply Saudi Arabia with Russian LNG.

“Buy our gas and you’ll save oil,” Putin told Saudi Energy Minister Khalid al-Falih, who also attended the launch ceremony in the Arctic, according to reporting by Reuters. “If we continue to work the way we do, we will turn from rivals into partners. All benefit from joint work,” Putin said.

Investments in Yamal LNG were put at risk after Novatek came under western sanctions for Moscow’s alleged military actions in eastern Ukraine and annexation of the Crimean peninsula. To support the project, Chinese banks lent more than $12 billion, while Russia provided $2.5 billion from a reserve fund and $4.2 billion from state-controlled Russian lenders Sberbank and Gazprom bank.

The proven and probable reserves at the South Tambey Field, which is Yamal’s resource base, as determined by the Petroleum Resources Management System standards are estimated to be 926 billion cubic meters. Extensive transportation infrastructure has been built as part of the project, including a sea port and the Sabetta airport.

Prior to the construction of Yamal LNG plant, Russia has had one other LNG plant, run by Gazprom. Shell holds a 20 percent stake in the project, which churns out 11 million tons of LNG annually on the Pacific island of Sakhalin.

Gazprom has a monopoly on Russian gas exports by pipeline – Russia’s primary source of exporting its gas – while Novatek secured the right to ship LNG abroad. Novatek’s next project is expected to be Arctic LNG on the Gydan peninsula, Novatek CEO Leonid Mikhelson said. He also added that Russia might produce more than 70 million tons of LNG per year from its remote Arctic regions.

Addressing the ceremony, Putin did not miss the chance to push back against critics of Russia’s efforts to expand its market share of global gas exports.

“When this project began, several people made a list of reasons why it would not work. There were risks. But you can see it has been a success,” Putin said. “This is a crucial event, not just for energy but for the whole use of the Arctic and the northern route,” he added.

The Russian president also called for an increase in the number of LNG-related projects.

“According to experts, global demand for gas will increase by over 40 percent by 2040. It is particularly important that supplies of liquefied gas will be growing faster than any other. Here, growth can reach about 70 percent. Russia can and should occupy a decent niche on this market. Today, as you may be aware, it remains fairly modest,” Putin said.

Moscow believes large-scale development of its LNG export industry is critical to its market competitiveness. Shipments of LNG out of Qatar and the U.S. to Europe are seen as competitors to what could be a more cost-effective solution for European leaders that are in charge of meeting the continent’s energy demands. More LNG plants are planned along Russia’s northern coastline, from the Baltic to the Pacific.