Russian President Vladimir Putin to launch giant US$27 billion LNG project in the Arctic

The Yamal LNG gas plant in the port of Sabetta, on the Yamal Peninsula above the Arctic Circle.
The Yamal LNG gas plant in the port of Sabetta, on the Yamal Peninsula above the Arctic Circle.PHOTO: AFP

SABETTA, RUSSIA (AFP) - President Vladimir Putin was set to launch Friday (Dec 8) a US$27-billion (S$37-billion) liquefied natural gas plant in the snow-covered plains of the Arctic as Russia hopes to surpass Qatar to become the world's biggest exporter of the chilled fuel.

In temperatures of around minus 27 deg C, the Russian president was scheduled to oversee the first gas shipment being loaded onto an icebreaking tanker from an LNG plant in the port of Sabetta on the Yamal Peninsula above the Arctic Circle.

For the project, Russia's privately owned gas producer Novatek partnered with France's Total and China's CNPC.

"Without a doubt Russia not only can but will become the largest producer of liquefied natural gas in the world," Putin said in March."We have everything for it."

Qatar is currently the world's biggest exporter of liquefied natural gas.

Russia, the world's biggest gas exporter, derives a huge share of income from pipeline deliveries to Europe.

With Yamal LNG, the country intends to strengthen its market presence in Asia and demonstrate its capacity to exploit huge Arctic reserves despite major technological challenges.

Total said on Friday the first shipment from the Yamal plant was ready to leave Sabetta. "Together we managed to build from scratch a world-class LNG project in extreme conditions to exploit the vast gas resources of the Yamal peninsula," Patrick Pouyanne, Total chairman and CEO, was quoted as saying in a statement.

Putin was expected to oversee the launch ceremony at around 1240 GMT, a Novatek spokesman said.

The tanker that will carry the first cargo was named after Christophe de Margerie, a former Total CEO who died in an accident on a runway of a Moscow airport in 2014.

White whiskers have been painted on the tanker in honour of the late CEO, who was known for his white bushy moustache.

The project is operated by Yamal LNG company, owned by Novatek (50 per cent), Total (20 per cent), CNPC (20 per cent) and Silk Road Fund (9.9 per cent).

The US$27-billion project is set to start with a production capacity of 5.5 million tonnes per year and increase it to 16.5 million tonnes by the start of 2019.

"Despite challenging operating conditions, Yamal LNG was delivered on time and on budget," said Samuel Lussac, an oil and gas specialist at Wood Mackenzie consultancy. "That is unusual in the LNG industry."

"Novatek, once a domestic gas supplier, becomes a global LNG player" with the project, he added. It will also boost Total's existing strength in the LNG sector, where it is the second largest producer in the world.

The project has had its share of financial and technical hurdles over the years.

While the Yamal peninsula has huge hydrocarbon reserves, it is an isolated region above the Arctic Circle, about 2,500km from Moscow and covered by ice for most of the year, with temperatures dipping as low as minus 50 deg C.

Since its inception in late 2013, an airport and a port have had to be constructed, as well as gas reservoirs and the LNG plant itself. Securing financing for the project was tricky.

US sanctions against Novatek made it virtually impossible to borrow from Western banks, and Chinese partners eventually stepped in to resolve the issue.

Despite the project's completion, Yamal LNG still faces risks, analysts said.

Lussac of Wood Mackenzie said that the coming months will show "whether the plant can operate smoothly in the harsh Arctic environment".

Transportation through the Northern Sea Route also remains undeveloped, and "its feasibility as a major LNG delivery route is unclear", he added.

Russia hopes the route will become an easier path to coveted Asian markets, with the LNG project contributing to understanding of how to navigate the Northern Route.

The route along the northern coast of Siberia allows ships to cut the journey to Asian ports by 15 days compared with the conventional route through the Suez Canal, according to Total.