Russian President Vladimir Putin offered Saudi oil minister Khalid al-Falih to buy Russian liquefied natural gas (LNG) in order to spare Saudi Arabia's oil, the Interfax news agency reported citing him as saying on Friday.
"Buy our gas and you'll save oil," Mr Putin told Mr Al Falih after having given the order to start loading the first gas tanker with LNG at the Novatek-led Yamal LNG project in the Arctic.
"That's why I'm here," Mr Al Falih replied.
Mr Al Falih witnessed the feat of engineering that Yamal LNG represents for the first time, having failed at a previous attempt during the summer when bad weather prevented him from landing. The Gulf state, which seeks to replace oil with gas for power generation, is looking at investing in Novatek’s future LNG projects in the Arctic, Al-Falih’s counterpart Alexander Novak said in October.
The comments come just days after a visit by the US Secretary of State Rick Perry to Riyadh were he discussed exporting LNG to Saudi Arabia.
Non-Opec Russia and Opec kingpin Saudi Arabia set up a $1bn energy fund to discuss investment in projects including Yamal LNG, following the visit of King Salman to Moscow in October.
Novatek, which holds 50.1 per cent of Yamal LNG versus 20 percent for Total and 29.9 percent for the two Chinese partners, has said it accumulated enough Arctic resources to produce more than 70 million tons of LNG per year.
Novatek will send its first Yamal LNG cargo to China in recognition of its support and growth as a key consuming region. Chinese lenders agreed to provide $12 billion to the project, the lion’s share of the budget, as the nation is on the verge of surpassing South Korea to become the biggest buyer of LNG after Japan.
The second cargo may follow shortly after with a third tanker on its way to the project’s port of Sabetta, where temperatures were around minus 26 degrees Celsius Friday. Three production units of 5.5 million tons per year each are planned at Yamal LNG, with the second seen starting in the third quarter and the final one in early 2019. Novatek is also mulling a fourth smaller train of as much as 1 million tons by then. More than half of the project’s fuel will go to Asia.
Operator Novatek earlier this week announced the start of production at Yamal LNG, in which Total SA, China National Petroleum Corporation and China’s Silk Road Fund also hold stakes. The operator of the world’s coldest LNG plant has been under US sanctions imposed three years ago as Russia’s relations with the US soured.
“This is for sure a complicated project,” Mr Putin said at the ceremony. “But those who started this project took a risk, and the risk was justified, and they succeeded.”
Russia, the world’s biggest gas exporter, has for decades relied on pipeline supplies of the fuel to Europe as a major source of income. It now aims to build LNG plants from the Baltic region to its Pacific coast to take on the biggest current and future producers of the super-chilled fuel delivered by tanker, including Qatar, Australia and the US.
The first cargo will be carried on the Christophe de Margerie, the world’s first icebreaking LNG tanker, named after the charismatic former Total chief executive officer who died when his plane crashed into a snowplough in Moscow three years ago.
“We managed to build from scratch a world-class LNG project in extreme conditions to exploit the vast gas resources of the Yamal peninsula,” Patrick Pouyanne, Total CEO, said in a statement on Friday. “With remarkably low upstream costs, Yamal LNG is one of the world’s most competitive LNG projects.”
Other tax breaks, including on gas extraction, make Arctic LNG competitive in any market, even taking into account higher transportation costs, according to the nation’s energy ministry. The region’s plants may use a shorter Northern Sea Route to Asia for the five months of the year when icebreakers can still operate, thanks to which Putin aims to gain a greater foothold in the Arctic.
Yamal LNG’s production is sold under long-term contracts on Asian and European markets, predominantly under oil-indexed price formulas, according to Total, which will buy 4 million tons annually from the project.
