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Russia Launches $27 Billion Arctic LNG Project

With the help of French (20%) and Chinese (29.9%) capital.

Russia's second-largest gas producer Novatek launched its long-awaited $27bn liquefied natural gas (LNG) project at Yamal, the company announced on December 5. The first cargo loading scheduled for December 8 has been sold to the China National Petroleum Corporation (CNPC), according to Vedomosti daily.

Despite the Western sanctions, privately owned Novatek managed to finance the Yamal LNG project and now its ambitions on the LNG market include expanding Yamal's capacity and building another $10bn LNG plant.

Prior to Yamal LNG, Russia had only one LNG plant on Sakhalin island in the Far East, which was operated by a joint venture of gas giant Gazprom and a number of foreign companies. Currently, Russia produces about 10mn tonnes of LNG a year but aspires to increase this to some 80mn tonnes, which would make it a major player in the LNG business.

The first line of the Yamal LNG with a capacity of 5.5mn tonnes, with a planned 17.5mn capacity, was "long-awaited," according to VTB Capital analysts, who note that the first delivery came within the timeframe guided by the company.

"Overall, given the company’s guidance and long-awaited launch of the plant, we deem the news as rather neutral for the name," VTB wrote on December 6.

Aton Equity on December 6 commented that Yamal LNG plays an important role in Novatek's investment case, contributing $16 per GDR of the analysts' Novatek target price of $133. Aton believes Novatek's shares will be in focus next week and maintains its Buy recommendation.

The Yamal LNG project stipulates construction of a 17.5mmt LNG plant on the Yamal Peninsula, in which Novatek holds 50.1% stake, French Total 20%, Chinese CNPC 20%, and the Silk Road Fund 9.9%. 

In November, Novatek signed a memorandum with Japan’s Marubeni Corporation and Mitsui O.S.K. on building an LNG transshipment terminal on the Kamchatka Peninsula. The terminal is central to Novatek's LNG ambitions as it would ensure flexible supplies of LNG to the key market of Asia-Pacific countries.

On September 28, Fitch Ratings affirmed the Long-Term Foreign-Currency Issuer Default Ratings (IDRs) of  Novatek at 'BBB-' with a negative outlook

According to Fitch, the rating reflects Novatek's strong business profile as a large Russian natural gas producer and exporter of refined and crude liquids, its moderate debt load, which is expected to decline in the short term, and projected positive free cash flow (FCF).

"The rating also takes into account Novatek's constrained access to international debt markets because of the US sanctions, and diminishing, though still present, completion risks associated with its Yamal LNG megaproject," Fitch said. 

Source: bne IntelliNews