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Russia's Yamal LNG still attractive despite capex hike: analysts

Highlights

Analysts said Thursday that the increased capital expenditure estimate for the giant Yamal LNG project in northern Russia to almost $27 billion would not impact on the competitiveness of the venture.

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On Wednesday, Yamal LNG partners Novatek and Total gave final approval for the development, but also raised the capex to $26.9 billion from a previous estimate of around $20 billion.

"Despite the higher figure, Yamal LNG remains a highly competitive project in the global arena," analysts at Moscow-based Alfa Bank said Thursday in a note.

They said that the breakeven LNG price for the project would now be around $8.20/MMBtu, higher than a previous $7.40/MMBtu forecast under the $20 billion capex scenario.


"Despite the higher breakeven price, the project remains highly competitive due to its key advantages," Alfa Bank said.

These are: the onshore conventional gas field feeding the project; LNG trains located right on the field, which significantly reduce transportation costs; and highly beneficial tax concessions granted to the South-Tambeyskoye field.

The Yamal LNG project on Russia's Yamal Peninsula will comprise three LNG trains, with a total production capacity of 16.5 million mt/year, and target export markets, specifically the growing Asia-Pacific region.

The first train is scheduled to begin commissioning in late 2016 before starting commercial operations in 2017, with the second and third planned in 2017 and 2018, respectively.

The project consists of the development of the South-Tambeyskoye gas condensate field and the construction of the liquefaction plant on the Yamal Peninsula.

PROJECT DELAYS?

Analysts at Russia's VTB Capital also welcomed the FID, but cautioned that the project could be hit by further cost overruns and delays given its complexity.

"Overall we believe that the news might be treated positively," VTB said.

"[But] such complicated projects usually tend to require more investment in the process of construction -- we are maintaining our cautious view on the project."

VTB added that the project is located in a remote area and that exports by pipeline may have been easier.

"It is technically complex, with no support in harsh climate conditions, and we believe there are potentially more easily available and cheaper options to evacuate gas, i.e. through a pipeline. We do not rule out further delays in the project."

Alfa Bank said, though, that higher costs are not unusual for large LNG projects.

"Capex increases occur regularly on LNG projects worldwide and Novatek is no exception," they said. "Yamal LNG remains attractive."

--Stuart Elliott, stuart.elliott@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com