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 reporter MorningNewsThe Russian gas company NOVATEK (owned mainly by Leonid Mikhelson) is focusing on the first line of the Arctic LNG-2 and pausing work on its other promising projects.
The work on the first line is still delayed – reports “Kommersant”However, the company plans to start moving the first floating platform from Murmansk to the Gulf of Ob by the end of August.
It's not yet clear what will happen to the other Arctic LNG-2 lines since TotalEngergies declined to invest in the project. There may be challenges with equipment supply. On March 24, TotalEngergies' head, Patrick Pouyanne, mentioned that the first line's readiness was at 98%.
According to the plan, the first line is set to launch in 2023, with the second and third lines following a year and two years later, each with a production capacity of about 6.6 million tons per year.
Regarding the platform, it's almost ready, and it just needs adjustments to the main equipment and the receipt of seven Baker Hughes gas turbines.
NOVATEK holds the 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 – holds 10%.
The Japanese consortium has not yet revealed its position on whether it will continue to cooperate in the project's implementation.
The project is estimated to cost 21 billion dollars, with around 1 billion dollars expected to come from TotalEnergies.
NOVATEK is not formally under sanctions, and the US and EU restrictions don't affect the equipment needed for the LNG construction, so things could go according to plan.
Furthermore, NOVATEK has already secured equipment for the second and third lines, although there is uncertainty about whether it will actually be shipped. There could also be logistical delays and supply disruptions.
Following the launch of Yamal LNG, Arctic LNG is NOVATEK's second major project in the LNG export sector. Ob LNG and Ob GPC were supposed to follow, but these projects are currently on hold.
The sanctions have placed NOVATEK in a challenging position in terms of external financing for the implementation of Arctic LNG-2. Sberbank, Otkritie, and VEB.RF, which were sanctioned, participated in the project.
Additionally, NOVATEK's tankers that delivered cargo were unable to access EU ports, and the EU side declined to purchase them, despite no formal barriers preventing them from doing so.
As of the end of 2021, Arctic LNG-2 was 57% funded. The fate of TotalEnergies' stake is still unclear. They might agree to reduce it in proportion to the investments made in favor of the other shareholders, or the company may miss out on receiving dividends.
At the very least, they won't be able to simply recover the funds spent without meeting their obligations. Consequences for rejecting a previously agreed investment may include: forced fund collection, collection of penalties and incurred losses – both actual and lost profits.
