Russian president Vladimir Putin, second right, flanked by energy minister Alexander Novak, left, and Novatek chief Leonid Mikhelson, second left, at the Yamal plant in Sabetta © EPA
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A landmark Russian Arctic gas project began loading its first seaborne shipment on Friday, marking the start of commercial operations for a $27bn venture that has defied western sanctions, deepened Moscow’s energy co-operation with China and lifted its ambitions to become a major liquid natural gas player.
Funded by Chinese banks and part-owned by France’s Total, the Yamal LNG project controlled by Russia’s Novatek will produce 16.5m tonnes of super-cooled gas a year by 2019, in a boost to Russia’s ambitions of tapping vast hydrocarbon deposits in the frozen Arctic and a test case for the viability of the so-called northern sea route to Asia.
Ceremonially launched by president Vladimir Putin, with the temperature touching minus 30C, an 80,000-tonne tanker designed to carve through 2.5m of ice began filling with gas at the port in Sabetta, closer to the North Pole than to Moscow.
For almost half the year, ships filled with gas will sail east, reaching China in about 15 days: roughly half the time of the conventional route around Europe and through the Suez Canal.
“When this project began, several people made a list of reasons why it would not work. There were risks. But you can see it has been a success,” Mr Putin said. “This is a crucial event, not just for energy but for the whole use of the Arctic . . . and the northern route.”
Mr Putin was joined by Saudi Arabia’s energy minister, Khalid al-Falih, amid talks between privately held Novatek and unnamed Saudi companies regarding their potential involvement in a second LNG project planned nearby.
Russia has sought to deepen its ties with China and Saudi Arabia as relations with the west sink to a cold war nadir sparked by sanctions imposed after its invasion of Crimea in 2014. Moscow and Riyadh have struck a deal to limit global oil production and Chinese companies have bought billions of dollars worth of Russian energy assets, including a stake in state oil company Rosneft.
Developing large-scale exports of LNG is viewed as critical for Russia’s energy export industry, which has seen LNG shipments from Qatar and the US emerge as potential rivals in Europe to pipeline gas supplied by Gazprom. More LNG plants are planned along its coastline, from the Baltic to the Pacific.
The Yamal project performed financial acrobatics in 2014 to comply with US sanctions imposed on Novatek by switching its financing to euros from dollars and drumming up $12bn worth of Chinese funding to replace western lenders.
It has begun operations on time and within budget, defying critics and the challenges of drilling for gas 600km inside the Arctic Circle, where temperatures can hit minus 50C.
The project’s launch “signifies the emergence of a global LNG player”, said Denis Pereventsev, vice-president at rating agency Moody’s in Moscow. It is also a coup for Total, given how sanctions have stalled other joint venture projects in the Arctic such as plans between ExxonMobil and Rosneft.
“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,” said Total CEO Patrick Pouyanne. Total and Chinese energy company CNPC each own 20 per cent of the project, with 50.1 per cent held by Novatek and 9.9 per cent by China’s Silk Road Fund.
The first LNG ship, named the Christophe de Margerie after the Total CEO who died in an air crash in Russia in 2014, is the first of 15 purpose-built craft ordered for the project. Asian buyers account for 54 per cent of Yamal’s contracted output with the balance being sold to Europe.