Total Agrees to Buy 10% of Second Yamal LNG Project (Amended)

(Amends WoodMac comment on state support)

French Total has agreed terms with Russian independent Novatek for a direct 10% stake in Arctic LNG 2, a project on the Gydan Peninsula in the north of Siberia, it said late May 24. It has a 20% stake in the functioning Yamal LNG project.

The transaction will be closed no later than March 31 next year and the project’s value is determined at $25.5bn, Novatek said.

As Total owns about 19% stake of Novatek and Novatek intends to retain 60% of the project, Total will end up with about 21.5% of the project, but it has the right to buy up to 15% directly if Novatek sells below 60%, it said. Novatek owns 50.1% of Yamal LNG, the existing project. Novatek and Total, which owns 20% of it, have also agreed that Total will be able to buy 10% to 15% direct interest in Novatek's future LNG projects in Yamal and Gydan. 

CEO Patrick Pouyanne said Total would "leverage the positive experience acquired in the successful Yamal LNG project. This project fits into our strategic partnership with Novatek and also with our sustained commitment to contribute to developing the vast gas resources in Russia’s far north which will primarily be destined for the strongly growing Asian market." As with Yamal LNG, which recently shipped its second millionth metric ton since the first train started up at the end of 2017, the new project also uses "giant low costs resources,” he said.

With a production capacity of about 19.8mn mt/year, Arctic LNG 2 will unlock more than 7bn barrels equivalent of oil in the onshore Utrenneye gas and condensate field. The project will involve the installation of three gravity-based structures in the Gulf of Ob – a cheaper alternative to the engineering for Yamal LNG – on which will be installed the three liquefaction trains of 6.6mn mt/year capacity each. 

Arctic LNG 2 production will be delivered to international markets by a fleet of ice-class LNG carriers that will be able to use the Northern Sea Route for cargoes destined for Asia. The final investment decision is expected in 2019, with plans to start up the first train by end 2023, Total said.

Senior researcher at Wood Mackenzie's upstream Russia team Kateryna Filippenko said the consultancy believes that Russian state support has already been secured, and the government is expected to provide all necessary assistance. "Our current valuation shows that project economics are also not a hurdle – the project provides a healthy return. Arctic LNG-2’s final investment decision is achievable in 2019 if the technical and commercial unknowns are addressed." She said WoodMac expected Novatek to "pull out all the stops to achieve FID in 2019."

Yamal LNG project finance was hit by sanctions after it took final investment decision, but the partners raised money with debt for equity and loans involving  Chinese entities, which own 29.9%. The Russian government also helped with financing and enabling the Sabetta Port construction, so that the first cargo left as planned in Q4 of 2017 – albeit with the thinnest of margins.