MOSCOW Novatek (NVTK.MM), Russia's second biggest gas producer, plans to launch liquefied natural gas (LNG) production at Yamal in the second half of 2017 and to ship its first cargoes before the end of that year, a senior executive said.
Novatek, which is under Western sanctions over Moscow's role in the Ukraine crisis, needs to deliver its Yamal project on schedule to reassure investors who stumped up some of the $27 billion cost of what will be Russia's second LNG plant.
"The most important thing that we were telling our investors was that the shareholders were 100 percent committed to finance the project up until the closing of the project financing, and that there were no delays in the project," Chief Financial Officer Mark Gyetvay told the Reuters Russia Investment Summit.
Novatek, whose biggest owners are Chief Executive Leonid Mikhelson and Russian billionaire Gennady Timchenko, is the majority owner of Yamal LNG. Junior partners are China's CNPC and the Silk Road Fund, as well as France's Total (TOTF.PA).
Chinese banks agreed to put up more than $12 billion in financing in April while the project also has the backing of Russian banks and the Russia's National Wealth Fund, one of the country's two sovereign wealth funds.
Gyetvay said the second and the third trains at Yamal were expected to be launched in the second half of 2018 and second half of 2019 respectively, bringing the total capacity to 16.5 million tonnes of LNG per year.
He said shipments to China from Yamal, where a port and airport are also being built, should take about 18 days going east using the Northern Sea route compared with some 32 days for the route to Asia via the Mediterranean Sea and Suez canal.
The northern route will be used during summer when the ice recedes enough to allow passage while the western route will be used in winter. Ninety-six percent of Yamal's LNG has been pre-sold to clients in Asia-Pacific, as well as France and Spain.
Gyetvay estimated Yamal's costs - extraction, liquefaction and shipping - at about $3 per million British thermal units (mmBtu), which is a measure used to calculate the LNG price. Out of that $3, about $2.5 is for shipping.
Asian LNG spot prices LNG-AS are under $5.50 per mmBtu, down from more $20 between 2010 and 2014, due to soaring output from Australia and the United States. LNG prices have also taken a hit from low oil prices.
"We are very comfortable within the current price range because of our competitive cash cost, and I think this makes our LNG output less sensitive to the movements in oil prices versus some of our competitors who are known as high-cost producers," Gyetvay said.
He forecast the global LNG market would swing into a deficit from 2023-2025 as no final investment decision had been taken on any project globally over the past two years, and no such decisions were expected next year either.
"If we look at a roughly 5-7 year construction period for a project, and none of them are being built, naturally you have implications from the supply side perspective to 2025 and beyond," he said.
After Yamal, Novatek is also considering a second project, Arctic LNG-2. It hopes to finish the feasibility work within the next 12 to 18 months and then make a final investment decision.
"I would anticipate that we would try to target first LNG production around 2023, which corresponds to our belief that the market will need additional volumes during this period," he said.
(Additional reporting by Oksana Kobzeva; writing by Katya Golubkova; editing by Christian Lowe and David Clarke)