Novatek, Total Delay Start of Yamal LNG Project to Early 2017

OAO Novatek (NVTK) and Total SA (FP) shifted the start of liquefied natural gas production at the $20 billion Yamal LNG project in Russia’s Arctic to 2017 after delays reaching an investment decision.

The first production line, or train, will start chilling fuel to a liquid for shipment by tanker in the beginning of 2017, according to an investor presentation obtained by Bloomberg News. The venture had planned to start LNG output in the fourth quarter of 2016.

Novatek, Russia’s second-biggest gas producer, is meeting investors today before a planned Eurobond sale.

Novatek, controlled by billionaires Leonid Mikhelson and Gennady Timchenko, and the French energy producer plan to build the gas liquefaction plant on the Yamal Peninsula above the Arctic Circle, surrounded by a sea that’s locked in ice for most of the year. The plant is designed to have three trains each with capacity to produce about 5.5 million tons a year.

The Yamal LNG partners postponed a final investment decision for the project to this year after targeting the end of 2012. In October 2012, Mikhelson, who is also Novatek’s chief executive officer, said consideration of the FDI may take six to eight months with talks expected to start in December.

Mikhail Lozovoy, Novatek’s spokesman, declined to comment on the presentation.

Export Rights

Yamal LNG is seeking to contract fuel shipments in the first half of the year, Mikhelson said at the time. The venture may also add a third partner and is talking to a number of potential partners including Electricite de France SA, the CEO said in an interview in Davos, Switzerland last week. He reiterated that Yamal LNG’s shareholder structure may not change from Novatek’s current 80 percent and Total’s 20 percent.

To spur the project’s development, Novatek applied to the government last year for the right to export LNG. OAO Gazprom (OGZD), the world’s biggest gas producer, holds a monopoly to export gas under Russian law.

The Energy Ministry submitted proposals about Novatek’s export request to the government, which will probably make a decision in the next couple of months, Deputy Energy Minister Pavel Fedorov said on Jan. 23. The oil and gas industry contribute about half of Russia’s budget revenue.

The government will have to examine the potential impact of lifting Gazprom’s monopoly, First Deputy Prime Minister Igor Shuvalov said in a Jan. 18 interview. “We need to understand whether this competition kills the price for Russian gas,” he said.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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