Since Russia’s March 2014 annexation of Crimea, U.S. and EU sanctions leveled against Moscow have hit hard , tightening restrictions on major Russian state banks and corporations, including blacklisting dozens of Russian officials, oil and gas industry executives and energy firms. Three major state-owned oil firms have been targeted: Rosneft , Transneft and Gazprom Neft, the oil unit of gas giant Gazprom. Russian banks and Gazprom’s ability to secure long term funding in U.S. dollars have also largely been blocked. Adding more pain, the U.S. and EU also banned exports of services and technology to Russian state oil firms engaged in Arctic and deep-water and unconventional oil and gas exploration and production.
In late April, independent Russian energy companies Lukoil andNovatek , told attendees at the annual IHS CERAWeek energy conference in Houston that they were feeling the sting of the sanctions.“We feel the impact of sanctions, but we need some time for Russia and the industry to adjust,” said Lukoil CEO and founder Vagit Alekperov.
Sanctions cause angst for Arctic projects
Another near casualty from the sting of Western sanctions has been Vladimir Putin’s signature Arctic energy project, the massive $27 billion Yamal liquefied natural gas (LNG) project slated to be built on Russia’s Yamal Peninsula, where temperatures can reach 50 degrees below zero Celsius.
Prohibited from securing financing in U.S. dollars, it has scrambled for the past two years in search of funds, finally turning to Chinese banks and export credit agencies, which are more expensive and less flexible than Western funding. Novatek admitted back in 2014 that Western sanctions had caused the project’s completion date to be changed.
However, more help appeared on the horizon late last week whenJapan Bank for International Cooperation (JBIC) said it will provide $400 million in financing for the Yamal project. JBIC Chief Executive Officer Tadashi Maeda said the bank had almost finalized the agreement with the project and plans to sign a memorandum of understanding for strategic partnership with Novatek, Russia’s largest independent natural gas producer.
Japan is the world’s largest LNG importer, while around two-thirds of all global LNG demand is in the Asia-Pacific region, though demand growth is slipping due to a glut of the super-cooled fuel and warmer temperatures in many LNG importing countries.
However, more help appeared on the horizon late last week whenJapan Bank for International Cooperation (JBIC) said it will provide $400 million in financing for the Yamal project. JBIC Chief Executive Officer Tadashi Maeda said the bank had almost finalized the agreement with the project and plans to sign a memorandum of understanding for strategic partnership with Novatek, Russia’s largest independent natural gas producer.
Japan is the world’s largest LNG importer, while around two-thirds of all global LNG demand is in the Asia-Pacific region, though demand growth is slipping due to a glut of the super-cooled fuel and warmer temperatures in many LNG importing countries.
Maeda said JBIC will consider an Arctic LNG investment only when its Yamal LNG participation is complete. “We are almost finalized for Yamal, and then we’ll move on to exploring the next opportunity of Arctic LNG,” he said.
Investments in the project have already reached around $18.5 billion, Novatek’s Chairman Leonid Mikhelson has said, while the first line of the plant is 76% ready and totally the project is 60% ready. What Mikhelson didn’t say was how hard it might be to raise the remaining $9 billion needed to fully fund the massive project.
Novatek said that it plans to move forward with a similar project, known as Arctic LNG 2, after the Yamal LNG development is complete, adding that the company isn’t rushing to choose partners for the new venture, which is seen starting production in 2022. A report in theInternational Oil Daily said that Japan is also expected to help attract Japanese equity investors to Arctic LNG 2.
