Novatek to Bring CNPC Into Yamal LNG to Gain China Foothold

China National Petroleum Corp. agreed to acquire a 20 percent stake in OAO Novatek’s $20 billion Yamal LNG project, allowing Russia’s second-biggest natural gas producer access to the Asian market and aiding its bid to raise financing.

CNPC will join Novatek and France’s Total SA in the liquefied natural gas venture, which plans to ship at least 3 million metric tons of LNG a year to China under an accord signed today at the St. Petersburg International Economic Forum.

Novatek, controlled by billionaires Leonid Mikhelson and Gennady Timchenko, and state-run OAO Rosneft are challenging OAO Gazprom’s export monopoly while seeking to ship LNG abroad. Rosneft today agreed with Exxon Mobil Corp. to develop the fuel and non-binding supply deals with Japan’s Marubeni Corp., Sakhalin Oil & Gas Development Co. and Vitol Group.

“The opening window of opportunity on the Asia-Pacific market with the expectation that LNG use will double allows us to take a decision on gradually liberalizing LNG exports,” said Russian President Vladimir Putin, who presided over the signing. “Preferential treatment in the economy, in a normal market economy, isn’t acceptable.”

Novatek shares rose 2.7 percent in Moscow to 335.44 rubles a share, the highest since Feb. 13.

LNG Acquisition

Mikhelson, the CEO of Russia’s second-largest gas producer, signed the long-term framework agreement to ship LNG to China as Novatek seeks to start output at the end of 2016. The plant is planned to reach capacity to produce 16.5 million tons a year of the fuel, cooled to a liquid for shipment by tanker.

CNPC’s acquisition of the Yamal LNG stake will probably be closed by Oct. 1, according to Novatek.

In a bid to raise funds for the project, located above the Arctic Circle, Novatek has said it’s ready to reduce its stake to as little as 51 percent by giving stakes to partners that offer markets for the fuel. Total owns 20 percent of the project, and Novatek holds the remainder. The French company also holds 15 percent of Novatek.

“We are also looking forward to CNPC’s significant contribution into attracting external financing for the project,” Mikhelson said in a statement from Novatek.

China’s rising energy consumption is driving world demand growth. Demand in China will grow by 12 percent a year over the next five years as it absorbs one-third of new LNG supplies worldwide over that period, the International Energy Agency said yesterday in its Medium-Term Market Report.

No Competition

China may rely on imports for more than 35 percent of its gas supplies by 2015, up from 15 percent in 2010, according to estimates from the National Energy Administration.

LNG supplies won’t compete with Gazprom’s long-delayed deal to build a gas pipeline and start deliveries to China, Russian Energy Minister Alexander Novak said yesterday. “Contracts should be an important factor in liberalizing the LNG export monopoly,” he said.

Rosneft, the world’s biggest publicly traded oil producer, plans to develop LNG with Exxon Mobil in Russia’s Far East, where the companies are partners in an oil and gas venture off Sakhalin Island. Rosneft’s deals today set forth the terms for long-term LNG sales in the Asia-Pacific region starting from 2019, including annual supplies of 1.25 million tons for Marubeni and 1 million tons for Sodeco, as the Japanese company is known.

Gazprom is planning to expand LNG production and will study building a plant with as much as 10 million tons of capacity a year near St. Petersburg to target European and Latin American markets, CEO Alexey Miller told reporters today.

“In general the only LNG that works is where you can’t build a pipeline,” Goldman Sachs Group Inc. head of commodity research Jeffrey Currie told reporters today.

Gazprom runs Russia’s only functioning LNG plant, on Sakhalin Island, and supplies about a quarter of Europe’s gas demand via pipeline.