Ambitious gas project in full swing
Print Edition
SPREAD across the frozen whiteness of the Russian Arctic, the ambitious US$27 billion Yamal gas megaproject aims to defy both the extreme temperatures and the Ukraine crisis impacting its funding.
Some 2,500 kilometers northeast of Moscow, the Yamal site — a joint venture by Russia’s Novatek, France’s Total and China’s CNPC — is destined to become one of the world’s biggest liquefied natural gas projects and deliver to both Asia and Europe.
But just two years ago the area drew only a handful of geologists and explorers whose neighbors were polar bears and foxes.
“There was nothing. Just tundra,” said Dmitry Fonin, a veteran of industrial projects in the Russian north who heads the Yamal project.
Now development is in full swing and around 9,000 workers are toiling away in often fiercely inhospitable conditions to launch the massive facility by 2017 that aims to produce some 16.5 million tons of LNG per year.
“It’s rather warm now, minus 10 degrees,” Ruslan Mikhailov, who captains an icebreaker tasked with keeping the waters around the port navigable, told reporters.
Plans for the project date back about 10 years, long before Russia’s current standoff with the West over Ukraine and punishing sanctions imposed by the United States and European Union after Moscow’s annexation of Crimea.
Russia hopes the location of the plant will allow it to diversify energy exports and ship both to European markets and Asia, via the northern route, the shortest passage between European Russia and the Pacific Ocean though navigation there remains highly seasonal.
Although the project was not directly targeted by the sanctions — and Total and CNPC still remain onboard with 20 percent each — the economic tit-for-tat has hit the venture in other ways.
In mid-July last year Novatek was put on the blacklist by the US Treasury, and even though the joint venture is not directly under sanctions, the punitive measures from the West are closing off huge swaths of potential cash.
The project still needs US$18 billion of investment and the funding issue has been exacerbated by the current reduced price of oil that has cut down industry revenues. Gas prices are often linked to crude oil prices.
“(If) we would not have this question of sanctions, the financing would have been done already, let’s be clear,” Total CEO Patrick Pouyanne said during a visit to the site.
He said he hoped it would arrive “in a matter of weeks.”
“Because of the sanctions we cannot use dollars, we use financing through Chinese banks, European banks and other Asian banks,” Pouyanne said.
“LNG projects are likely to face significant delays, due to high costs, geopolitics and financial sanctions,” analysts with energy association Cedigaz said in a recent note. “But could eventually develop on a significant scale in the next decade.”
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