Novatek’s finance chief: Arctic LNG 2 signs several new deals as construction progresses

Russian independent producer Novatek is pushing forward with the construction of its second Arctic LNG export but it has also signed new supply deals with unidentified buyers, according to the company’s finance chief.

The project located on the Gydan peninsula includes the construction of three LNG trains with a capacity of 6.6 mtpa, each, using gravity-based structure platforms.

“At the end of 2020, the overall construction progress for Arctic LNG 2 was estimated at slightly more than 32%, up from 27% at the end of September,” Novatek’s Mark Gyetvay told analysts on Thursday during a conference call discussing the firm’s 2020 results.

He said the first train’s overall progress, including platform construction, module fabrication and facilities on site reached about 46% completion, adding that concrete works also continued for the second GBS platform at the dry dock.

Novatek is the LNG project’s operator with a 60 percent stake, France’s Total 10 owns percent while CNPC and CNOOC of China have 10 percent, each.

Japan Arctic LNG, a consortium of Mitsui & Co and Jogmec owns a 10 percent stake in the project as well.

No delays as the firm still targets launch of first train in 2023

Gyetvay also said that construction works are in full swing at the Murmansk LNG construction yard where the firm mobilized approximately 4,100 construction workers.

In addition, Chinese yard responsible for delivering the project’s LNG modules have also increased their workforce.

“No delays are expected in the delivery of LNG modules as 12,500 workers are now mobilized at the module construction sites in China as compared to 7,000 workers in September,” Gyetvay said.

The yards are producing at full capacity, and Covid-19 preventive measures are in full effect to limit any negative impact on work schedules, he said.

“Boil-off compressors from Siemens, gas turbines for power generation, cryogenic gas turbine compressors and separators from Baker Hughes, and the heat exchanger from Linde were delivered to shipyards in China for installation inside the LNG modules,” he said.

Novatek expects the first modules for the first GBS to arrive in Murmansk around September 2021.

Accordingly, Novatek plans the launch of the first GBS in 2023, and “we see no delays in meeting this target,” he said.

Moreover, Novatek completed drilling of additional six production wells during the fourth quarter at the Utrenneye field located in the northern part of the Gydan peninsula. In total, the firm now completed 23 production wells at the field that will feed the plant.

“This represents 32% of the sales development plan to meet the long schedule of the first GBS unit,” Gyetvay said.

Advanced talks on $11 billion financing

Novatek and partners also working to complete external financing for the project that will cost around $21.3 billion in total.

Gyetvay said shareholders financed about 34% of the project’s total capital program by year-end, and “we’ve contracted more than 87% of the project’s total capital expenditures, including 100% of the equipment for the Utrenneye terminal.”

“We spent approximately $4 billion in 2020 and estimate that the capital requirements will be about 50% more to approximately $6 billion in 2021 as the construction process intensifies to meet the scheduled launch dates,” he said.

Furthermore, Novatek is in “advanced stages” of negotiation to secure the project’s external financing of approximately $11 billion US dollar equivalent by mid-2021 or earlier, Gyetvay said.

To remind, Russia’s Sberbank has already confirmed the bank’s commitment of more than $3 billion.

“And we have other Russian banks as well as Chinese, Japanese and European banks that have all expressed their desire to be part of this financing structure,” Gyetvay said.

“The recent spike in spot prices has narrowed the expectation gas between buyers and sellers. And as a result, it will bring everyone to the negotiating table with more realistic expectations,” he said.

Several new LNG contracts

Gyetvay said that Novatek has agreed on all the main parameters for the sales and purchase agreements (SPAs) with other project participants, and the firm expects to finalize the signing before the end of this year.

“We have also been actively discussing and negotiating long-term supply contracts with potential buyers for our share of the LNG output,” he said.

“These discussions are proceeding according to our commercial marketing plans, and we have already signed several binding new contracts for the sale of LNG from Arctic LNG 2,” he said.

“We will announce the contracts in due course. But as of tonight’s call, we have mutually agreed with the buyers to withhold disclosures to this information at this time,” Gyetvay said.

He added that the firm is targeting at least 80% of its future LNG sales to the Asian markets.

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