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Russia’s Novatek sets up China office to market gas amid sanctions- sources

Russian natural gas producer Novatek NVTK.MM is building a new China-based team to explore marketing the fuel, sources familiar with the plans said, as U.S. sanctions thwart plans for exports from its new multi-billion dollar Arctic project.

The move illustrates Russian energy companies’ continued pivot to Asia, especially China, after the Ukraine conflict cut off their access to markets in Europe. A China operation may help Novatek find customers for its newest liquefied natural gas (LNG) project, Arctic LNG 2, after U.S. sanctions were imposed.

Novatek, Russia’s largest LNG producer, has been building a Beijing-based business development and marketing team in recent months, six sources with knowledge of the matter said. The sources declined to be named as they were not authorised to speak to the media.

The new team is led by Xu Jinhai, a former China executive with Russian energy-focused lender Gazprombank, and will come under Novatek (China) Holdings, according to two of the sources.

Xu told a Reuters journalist who visited Novatek’s well-appointed office in a Beijing skyscraper on Tuesdaythat he was not able to comment without authorisation from Novatek’s head office.

Novatek did not immediately respond to a request for comment.

Arctic LNG 2, a part of Russia’s ambition to become a top global LNG supplier, was hit with U.S. sanctions last November, before its planned start up this year. Novatek and partners, such as France’s TotalEnergies TTEF.PA, told planned buyers such as China’s Shenergy Group and Zhejiang Energy, along with Spain’s Repsol, that shipments would not be delivered.

Other Arctic LNG 2 investors, including China National Petroleum Corp (CNPC) and CNOOC Ltd, have sought U.S. sanction waivers.

“It’s an effort to shift around portfolio to potentially market to Chinese customers who could cope with the sanction regime,” said one of the sources, a Chinese gas trading executive.

The new Beijing operation has in recent months hired a team of about 10, said another of the six sources. At least two vacancies for Novatek’s Beijing business appeared on a Russian recruiting web site.

The formation of the China unit follows the departures of most of Novatek’s Singapore-based LNG marketing and trading team over the past several months amid concerns the business would be impacted by the sanctions, said a Chinese executive close to the company.

CHALLENGES

While China and Russia’s leaders have said the countries share a friendship with no limits and China has criticised a number of U.S. sanctions programmes, it is also wary of running afoul of such sanctions.

China surpassed Japan last year as the world’s top LNG buyer.

However, Novatek’s efforts to market fuel from Arctic LNG 2 face numerous difficulties stemming from the sanctions, said two of the sources, trading executives with Chinese importers.

Novatek owns 60% of Arctic LNG 2 but the ownership also includes a Japanese consortium that holds 10%, along with TotalEnergies, CNPC and CNOOC Ltd 0883.HKat 10% each.

Also, Novatek is hamstrung by a shortage of vessels, including ice-class tankers, to deliver LNG to long-term buyers, which have mostly secured their contracts on a delivered basis.
Novatek may start loading the first cargo from the Arctic LNG 2 plant in February, Russia’s TASS news agency reported last month, citing Russian Deputy Prime Minister Alexander Novak.

Arctic LNG 2, estimated to cost $21 billion, is designed to export 19.8 million metric tons of LNG a year.
Source: Reuters (Reporting by Chen Aizhu in Singapore and Vladimir Soldatkin in Moscow; Additional reporting by Marwa Rashad in London and Emily Chow in Singapore and Joe Cash in Beijing and the Beijing newsroom; Editing by Tony Munroe and Christian Schmollinger)

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