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Novatek courts Gunvor for Yamal LNG sales

BY LYUBOV PRONINA and ANNA SHIRYAEVSKAYA

TARKO-SALE, Russia (Bloomberg) -- OAO Novatek, the Russian company developing a liquefied natural gas project in the Arctic, is considering a tie-up with global energy trader Gunvor Group Ltd. as it prepares to ship LNG abroad for the first time.

Novatek’s trading arm plans to sign joint contracts with Gunvor to sell cargoes from the Yamal project, CEO Leonid Mikhelson said in Davos, Switzerland. The Russian gas company already has customers for as much as 78 percent of the LNG from the venture, he said.

Novatek, which gained rights to export LNG in December, is leading the Yamal project to help expand Russia’s share of the global LNG market as Asian consumption rises. For Gunvor, the partnership would enlarge its gas-trading operations at a time when efforts among countries to cut oil use and scale back nuclear power are increasing demand for an alternative fuel.

“Gunvor managed to put together a good, professional LNG team,” Mikhelson said. There’s a “high probability” of arranging such joint contracts, he said. Seth Pietras, a spokesman for Gunvor, declined to comment on cooperation with Novatek when contacted by Bloomberg News.

Gunvor co-founder Gennady Timchenko said in June that the commodity company, with offices in Geneva and Singapore, was interested in expanding its gas and LNG trading operations and had potential Asian contracts planned. Billionaire Timchenko and Mikhelson control Novatek with a combined stake of 48 percent.

Novatek has already struck deals to sell LNG from Yamal to China National Petroleum Corp., a shareholder in the venture, and Gas Natural SDG SA of Spain. Guaranteed supply contracts may help the partners obtain project financing for the development, which is forecast to cost as much as $26.9 billion to bring to fruition.

While most LNG is sold under long-term contracts, spot and short-term deals—of four years or less—rose to a record 25.4 percent of total trade in 2011 from 16.3 percent in 2009, according to the International Group of LNG Importers. That share retreated to 25 percent in 2012, the industry group said.

Novatek, based in Tarko-Sale, Siberia, holds a 60 percent stake in the Yamal venture after selling 20 percent to CNPC last year. Total SA also has 20 percent and, like CNPC, has agreed to buy cargoes from the project. The French company will ship the LNG to Asia and Europe, while Novatek’s trading arm, Novatek Gas & Power, will buy cargoes to supply Asia, Mikhelson said.

CNPC’s LNG-purchase agreement, for at least 3 million tons a year, will be fully linked to oil prices, while the other contracts will have mixed pricing, according to the executive.

LNG prices for delivery to Northeast Asia in four to eight weeks were on average $3.70 per million British thermal units higher than in southwest Europe in the past year, according to assessments by World Gas Intelligence.

“Freight to the Chinese market, to Asia, is much more expensive than to Europe, but at current prices, at contracts signed, the Asian market gives bigger margins,” Mikhelson said.

Novatek is ready to reduce its 60 percent interest in Yamal LNG further, while keeping a controlling stake, he said. While it’s in talks with companies from India, Japan, South Korea, China and elsewhere, any decisions are unlikely in the next two to three months.

01/27/2014

 

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