• To Rus­sia with en­er­getic love

Chi­nese in­vest­ment in a nat­u­ral gas project in the re­source-rich Arc­tic re­gion prom­ises to be a game-changer later this year

China Daily European Weekly - - Business - By ZHENG XIN zhengxin@chi­nadaily.com.cn

Amega over­seas project for liq­ue­fied nat­u­ral gas that will likely bur­nish China’s global pro­file, con­trib­ute to the coun­try’s energy se­cu­rity, en­hance its geopo­lit­i­cal strat­egy and bol­ster ef­forts for eco­nomic re­ju­ve­na­tion is sched­uled to start pro­duc­tion in the Rus­sian Arc­tic late this year.

The Ya­mal project — its cor­po­rate en­tity is called Oao Ya­mal LNG — is lo­cated in north-cen­tral Rus­sia and is ex­pected to pro­duce 16.5 mil­lion met­ric tons per an­num.

In Septem­ber 2013, China Na­tional Petroleum Corp, the coun­try’s largest oil and gas pro­ducer by an­nual out­put, act­ing through its sub­sidiary, CNPC Rus­sia, bought a 20 per­cent stake in Oao No­vatek’s $27-bil­lion (25 bil­lion eu­ros; £21.6 bil­lion) Ya­mal project for $5.4 bil­lion.

Oao No­vatek holds a 50.1 per­cent stake in the Ya­mal project, while To­tal holds 20 per­cent and the Silk Road Fund, 9.9 per­cent. No­vatek is Rus­sia’s in­de­pen­dent nat­u­ral gas pro­ducer and the coun­try’s sec­ond-big­gest LNG com­pany af­ter state-owned Gazprom.

China’s in­vest­ment will help the Rus­sian gas sup­plier to com­plete the project, one of the largest in­dus­trial un­der­tak­ings in the Rus­sian Arc­tic. The new gas pro­duc­tion cen­ter evolv­ing in the Ya­mal Penin­sula is ex­pected to trans­form the Rus­sian gas in­dus­try.

It is also ex­pected to boost China’s oil and gas re­serves sub­stan­tially, en­sur­ing a steady, long-term sup­ply.

Much of Ya­mal’s out­put would be sup­plied to China and other Asian coun­tries, ac­cord­ing to No­vatek. CNPC pledged to buy at least 3 mil­lion tons of LNG per year, said an­a­lysts.

Ac­cord­ing to Wang Lu, an Asia-Pa­cific oil and gas an­a­lyst from Bloomberg In­tel­li­gence, im­ports from Ya­mal may ac­count for more than 1.6 per­cent of China’s gas de­mand, which is es­ti­mated to be 257 bil­lion cu­bic me­ters in 2018, as­sum­ing a 10 per­cent com­pound an­nual growth rate dur­ing the 13th Five-Year Plan (2016-20).

“China’s LNG im­ports will con­tinue to be an im­por­tant con­trib­u­tor to its sup­ply land­scape in 2020,” she says.

“The project’s suc­cess and re­li­a­bil­ity will en­hance CNPC’s in­vest­ment re­turn, so this aligns CNPC’s in­ter­ests with No­vatek’s.”

For CNPC, Ya­mal has strate­gic im­por­tance. It ex­pects the project to foster greater co­op­er­a­tion be­tween Bei­jing and Moscow in the Arc­tic, give a fil­lip to eco­nomic de­vel­op­ment and sci­en­tific re­search, and shape re­gional rules and norms re­lat­ing to gas re­serves in the re­gion.

Li Li, energy re­search di­rec­tor at ICIS China, a con­sult­ing com­pany that pro­vides anal­y­sis of China’s energy mar­ket, says the coun­try had ar­ranged for the steady im­port of nat­u­ral gas from Rus­sia even be­fore the Ya­mal in­vest­ment.

Rus­sia’s Gazprom has a 30-year con­tract with China to sup­ply 38 bil­lion cu m of nat­u­ral gas an­nu­ally be­gin­ning in 2018. CNPC’s par­tic­i­pa­tion in Ya­mal is part of Chi­nese com­pa­nies’ global strat­egy and sig­ni­fies the coun­try’s in­tent to be a key player in the cru­cial Arc­tic re­gion.

In the process, China will have also helped Rus­sia with its short­age due to sanc­tions im­posed by the US and Europe over the an­nex­a­tion of Crimea.

The deal rep­re­sents a sig­nif­i­cant step in Rus­sian Pres­i­dent Vladimir Putin’s push to boost com­mer­cial ties with China.

China’s back­ing will en­sure the project will roll, says an of­fi­cial from CNPC Rus­sia. Elab­o­rat­ing, he says sanc­tions had ren­dered fi­nanc­ing for the project in US dol­lars im­pos­si­ble.

Sev­eral US and Euro­pean banks have pulled out of fi­nanc­ing deals, leav­ing a void to be filled with China’s cap­i­tal, tech­nol­ogy and mas­sive mar­kets.

Ac­cord­ing to Ev­geniy Kot, di­rec­tor-gen­eral of the Ya­mal project, the com­pany has sold 96 per­cent of the project’s LNG pro­duc­tion to Euro­pean and Asian cus­tomers through 20- to 25-year con­tracts.

Ben­e­fit­ing from the vast nat­u­ral gas re­serves across the Ya­mal Penin­sula, the com­pany signed loan agree­ments with the Ex­port-Im­port Bank of China and the China De­vel­op­ment Bank Corp for 1.2 bil­lion yuan ($173 mil­lion; 161 mil­lion eu­ros; £138 mil­lion ) in all.

For its part, Rus­sia will pro­vide tax in­cen­tives to com­pa­nies in­volved in the de­vel­op­ment of the Arc­tic re­gion, in­clud­ing zero ex­port duty on LNG and spe­cial tar­iffs for con­den­sate oil.

CNPC Rus­sia said it is con­fi­dent No­vatek’s rich ex­pe­ri­ence in op­er­at­ing in Arc­tic weather con­di­tions will help the Ya­mal project.

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