Business/economics

Novatek Shareholders Approve $11 Billion in External Financing for Arctic LNG 2

Russia’s second-largest gas producer plans to raise $11 billion with the help of China, Japan, and Europe.

Loading a tanker at Novatek’s current Arctic LNG facility.
Loading a tanker at Novatek’s current Arctic LNG facility.
Source: Novatek.

Shareholders of Russia's second-largest gas producer, Novatek, have approved $11 billion in external financing for the Arctic LNG 2 project on which Novatek has pledged its 60% equity stake in the project as collateral.

The approval came 23 April at the company’s annual shareholders' meeting. In making the announcement, Novatek CEO Leonid Mikhelson said that responsibility for fundraising will be split three ways between Russia, China, and the tandem of Japan and Europe acting together.

The $21-billion project, which received final investment approval in 2019, is expected to launch production in 2023 as Novatek expands its LNG exports east and west along Russia's now navigable Arctic coast.

Arctic LNG 2 will reach full capacity of almost 20 mtpa in 2026, according to the company.

Novatek holds a 60% stake in the project with the remaining 40% split equally between France's Total, China National Petroleum Corporation, China's CNOOC, and the Japan Arctic LNG consortium, made up of Mitsui & Co. and state-owned JOGMEC, formally known as Japan Oil, Gas, and Metals National Corp.

In April, Novatek indicated it would pledge that 60% stake as collateral for long-term financing, according to Reuters.

Reports in financial media led by Reuters had indicated in September that the project had already attracted enough international capital to cover nearly all of the $11 billion sought. Citing a document first quoted by Reuters, S&P Global reported that “France's state investment bank and credit agency Bpifrance SA offered $700 million in credit finance; the China Development Bank and German bank Euler Hermes would offer a $5 billion facility and a $300 million covered facility, respectively.

“Other state-backed institutions reportedly included the Japan Bank for International Cooperation with a $2.5 billion facility, Italy's SACE with a $1 billion covered facility, and an unnamed Russian bank with $1.5 billion,” S&P Global reported, citing figures from Reuters.

Russia's state-owned Sberbank approved financing in January of up to 3 billion euros ($3.5 billion), Reuters wrote.

In late February, Novatek signed a deal with China’s Shenergy Group to deliver more than 3 million tons of LNG to terminals in China over 15 years, as the Russian gas producer continued to line up purchasers with intent to expand its presence in the Asian-Pacific region.

“Our LNG commercial strategy is to diversify our client base and target end consumers in the fast-growing Asian Pacific region,” Mikhelson, said in a statement issued at the time. “The Chinese market is one of the key regions in our LNG marketing strategy, and we plan to further increase our supplies of liquefied natural gas to this country.”

In January, the Russian Arctic-class LNG carrier Christophe de Margerie completed the first-ever round trip along the Northern Sea Route from the Kara Sea to China, thus proving navigation is possible year-round and giving Russia the ability to attractively price its LNG exports.

Russia’s largest independent gas producer, Novatek entered the global LNG market by launching the Yamal LNG project in 2017. The company’s upstream activities are concentrated mainly in the Yamal-Nenets Autonomous Region, which is the world’s largest natural gas producing area, accounting for approximately 80% of Russia’s natural gas production and approximately 15% of the world’s gas production.

In the first quarter 2021, Novatek produced 158.1 million BOE, including 20.15 Bcm of natural gas and 3,129 thousand tons of liquids (gas condensate and crude oil). This represented a 5.3% increase in total hydrocarbons produced (BOE) in first quarter 2021 when compared to first quarter 2020, according to a company press release.

Novatek said that capital expenditures related to the 19.8-mtpa LNG project would hit $21.3 billion. Arctic LNG 2 is expected to start up its first train in 2023; the second and third trains will be launched in 2024 and 2026, respectively, according to the company’s website.