Sanctions will not prevent Leonid Mikhelson’s NOVATEK from completing the Arctic LNG-2 project, but the gas holding’s investment program will still have to be revised.
According to the correspondent MorningNewsthe Russian gas giant NOVATEK (the key owner is Leonid Mikhelson) has concentrated on work on the first line of the Arctic LNG-2, while freezing work on all its other promising projects.
Work on the line is still behind schedule – writes “Kommersant”However, the company plans to start transporting the first floating platform from Murmansk to the Gulf of Ob by the end of August.
Since TotalEngergies refused to invest in the project, what will happen to the other Arctic LNG-2 lines is not yet clear. Difficulties may arise with the supply of equipment. The head of TotalEngergies, Patrick Pouyanne, said on March 24 that the readiness of the first line was already 98%.
According to the plan, it should be launched in 2023, the second and third were planned a year and two after the first, respectively. Each in terms of production capacity will have to show about 6.6 million tons per year.
If we talk about the platform, it is almost ready, it remains to adjust the main equipment and receive seven Baker Hughes gas turbines.
NOVATEK owns a majority stake (60%) in Arctic LNG-2, each of the other shareholders – TotalEnergies, Chinese CNPC and CNOOC, and a consortium of Japanese Mitsui and JOGMEC – each has 10%.
The Japanese consortium has not yet indicated its position on whether it will continue cooperation in the implementation of the project or not.
The cost of the project is estimated at 21 billion dollars, about 1 billion dollars was supposed to come from TotalEnergies.
Since NOVATEK is not formally sanctioned, and the US and EU restrictions do not affect the equipment needed for the LNG construction, everything can go according to plan.
Moreover, NOVATEK has already contracted equipment for the second and third lines. Although in the current realities it is impossible to be completely sure that it will still be shipped. Plus, there may be logistical delays and supply disruptions.
After launching Yamal LNG, Arctic LNG is the second major NOVATEK project in the LNG export section. They were supposed to be followed by Ob LNG and Ob GPC, but so far these projects are on pause.
One way or another, the sanctions put NOVATEK in a difficult position regarding the implementation of Arctic LNG-2 in terms of external financing. Sberbank, Otkritie and VEB.RF, which fell under the sanctions, took part in it.
In addition, NOVATEK’s tankers that delivered cargo could not get into EU ports, and that side refused to buy them, although formally nothing prevents them from doing so.
As of the end of 2021, Arctic LNG-2 was 57% funded. The outlook for what will happen to the TotalEnergies stake is not very clear yet. In theory, they may agree to reduce it in proportion to the investments already made in favor of the other shareholders. Or the firm will be left without the opportunity to receive dividends.
At least, it will not be possible to simply return the funds spent without fulfilling obligations. Measures of responsibility for the refusal of a previously agreed investment may be as follows: forced collection of funds due, collection of penalties and losses incurred – real and lost profits.