Yamal LNG secures Chinese loans

05 May 2016, Week 17 Issue 416

THE consortium behind the Yamal LNG scheme on Russia’s Arctic coast has drawn down over US$12 billion in loans from Chinese lenders, securing the last funding tranche needed to complete the project. Yamal LNG announced on April 29 that it had signed loan agreements with Export-Import Bank of China and the China Development Bank for US$10.6 billion and US$1.5 billion respectively. 

Negotiations over the 15-year loans had dragged on for several months because of US and EU sanctions targeting Yamal’s operator, Novatek, which effectively barred the project from access to Western financing. 

Thanks to the latest loans, the project’s US$18-19 billion external funding requirement has now been met. It has already obtained a 3.6 billion euro (US$4.15 billion) loan from Russian state lenders Sberbank and Gazprombank, as well as 150 billion euros (US$2.25 billion) in financing from Russia’s sovereign wealth fund. 

Novatek, Russia’s largest independent gas producer, holds a controlling 50.1% stake in Yamal LNG alongside France’s Total and China National Petroleum Corp. (CNPC) with 20% interests apiece. China’s Silk Road Fund holds the remaining equity of 9.9%. 

The project is set to begin production in 2018, yielding some 5.5 million tonnes per year of LNG. Its capacity will eventually ramp up to 16.5 million tonne per year. Around 95% of future production has already been pre-sold to customers in Europe and China. “The project is progressing in accordance with the approved schedule. With the first train of the LNG plant 65% complete we are currently at the most intensive phase of construction and assembly works,” said Yamal LNG general director Yevgeny Kot in a statement. 

Russia wants to double its slice of the global LNG market by building new plants to accompany its only LNG facility on Sakhalin Island in the country’s Far East. The complex, in which state gas champion Gazprom and Royal Dutch Shell are major stakeholders, produces around 10 million tonnes per year. 

The Yamal scheme has been beset with challenges. The ban on access to Western capital over Russia’s alleged role in the ongoing separatist crisis in eastern Ukraine threatened to derail the project entirely. Low prices have also called Yamal LNG’s viability into question. The latest loan agreements represent a victory for Moscow in its attempt to circumvent Western sanctions against its core energy sector. Russian President Vladimir Putin has since turned the country’s gaze east in a bid to secure much-needed funding as Russia’s energy-reliant economy endures its worst downturn for nearly two decades.