Forbes’ Richest Russian Gets Even Richer In LNG Deal
The richest Russian on the Forbes billionaire list, Leonid Mikhelson, became even richer on Tuesday after selling a 10% stake in its Arctic LNG project to France’s Total.
The $24 billion man behind Russia’s largest, privately owned natural gas company Novatek inked a $2.5 billion deal with Total on Tuesday for a liquefied natural gas project estimated to cost $21 billion, though that price keeps falling. In January, Mikhelson said it was worth around $45 billion.
The deal for the sale of 10% of Novatek’s Arctic LNG-2 project was signed last year at the St. Petersburg International Economic Forum—deemed the Russian Davos—in the presence of president Vladimir Putin and France’s president Emmanuel Macron.
Recent exploratory drilling confirmed significant reserve growth at the project’s Utrenneye field located in Western Siberia. Arctic LNG-2 is Novatek’s second-largest LNG project after the Yamal project in northern Russia.
The Russian state reserves commission puts Arctic LNG-2 gas reserves at approximately 2 trillion cubic meters. The project will eventually include the construction of three LNG train terminals that can transport around 6.6 million tons per year each, using gravity-based structure platforms. These platforms look a lot like the deep-sea drilling rigs common in the offshore oil industry.
European companies are sharing in Mikhelson’s ice-cold Arctic wealth.
Italy-based Nuovo Pignone, an oil and gas industry equipment manufacturer owned in part by GE, secured a contract in December to provide turbo machinery equipment for a Novatek LNG export project. Siemens of Germany is also in with the Russians. They won a contract to provide equipment for the Arctic LNG 2 project.
American firms are sanctioned from providing any technical equipment used in the extraction of hydrocarbons in Russia’s Arctic. ExxonMobil was banned and later fined by the Obama administration for its joint venture with Rosneft in Russia’s Kara Sea, near the Yamal peninsula where Mikhelson is setting up an Arctic throne for Novatek.
Deputy Prime Minister Yury Trutnev—now head of Russia’s Arctic development—told Russian newswire Interfax recently that the government should allow for more private investment in onshore drilling in Siberia, which includes lands within the oil and gas rich Arctic Circle. So far, a 50% state participation rate is required for onshore oil and gas projects there. Meanwhile, the development of offshore Arctic wells is prohibited for private companies unless they are minority partners with Rosneft, Gazprom or their subsidiaries.
According to Russian business daily Vedomosti, only five wells have been drilled in Russia’s Arctic shelf compared to over 300 wells in Norway and around 100 in the U.K.
The Russian government is said to be preparing a new investment plan for the region by the end of the month.
Novatek will be looking for more corporate partners for Arctic LNG-2. An American oil and gas company will not be one of them.
Novatek has avoided U.S. sanctions, but Mikhelson has been preparing his company for them just in case. He has switched financing from dollars to euros and has upwards of $12 billion in loans from Chinese banks.
Washington has used “election meddling,” the Ukraine and Putin putting his foot down on regime change in Syria as a reason to go after Russian oil and gas firms. The Senate has already managed to force Trump’s hand on a sanctions law that threatens Gazprom’s Nord Stream II, a pipeline connecting Russia to Germany. It, too, counts on the support and financing of major European oil and gas industry players.
New sanctions bills being tossed around include potential restrictions against any Western involvement in Russian energy projects, curbs on the operations of Russian state-controlled lenders like Gazprombank, Sberbank and VTB, and potential restrictions on holding Russian sovereign bonds.
“Few would bet against Novatek, after the company defied all expectations to deliver Yamal LNG on time and on budget,” Kateryna Filippenko, senior Russia research analyst at Wood Mackenzie, was quoted saying in an October article published on the website of oil and gas market research publishers Petroleum Economist. “State support has already been secured for LNG-2 and the government is expected to provide all necessary assistance,” she said.