Sabetta, Yamal Peninsula —
* First shipment expected by October
* To start long-term supplies in 2018
* Seen as one of most competitive LNG projects in the world: Total CEO
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Russia's Yamal LNG in the Arctic, expected to debut later this year, plans to start deliveries under long-term contracts in 2018, while initial cargoes will be sold on the spot market, Novatek CEO Leonid Mikhelson said Thursday.
"Deliveries under long-term contracts will begin next year. This year, supplies will take place on spot market," Mikhelson told reporters in a briefing in the Arctic port of Sabetta, from where the LNG will be shipped.
"The project participants will enter the spot market with initial volumes, and will sell these volumes where the market is best," he said.
Novatek plans to launch the first 5.5 million mt/year train this year, with another two of the same capacity to follow in 2018 and 2019.
The first LNG tanker is to leave the port of Sabetta on the Kara Sea in the second half of the year but it is hard to give a more precise timeframe as testing works are continuing, he said.
CEO of France's Total, Patrick Pouyanne, also present in Sabetta, said the launch would take place before October.
Total owns 20% in the project, where Novatek holds a 50.1% stake. China's CNPC and Silk Road Fund hold 20% and 9.9% in the project respectively.
The key shareholders arrived in Sabetta Thursday for the formal welcoming into the port of the first icebreaker, named after Christophe de Margerie, former CEO of Total who brought the French company into the project and who was killed in a airplane crash in Russia two and a half years ago.
The 300-meter-long tanker, currently the largest icebreaking tanker in the world, has a capacity of 172,600 cu m, and can go through ice 2.1 meters (6.9 feet) thick, its operator Sovcomflot said.
Actual deliveries to customers will be somewhat lower as the LNG storage tanks at the plant have a 160,000 cu m capacity, and some of the LNG will be used as tanker fuel.
The Arc7 tanker, which arrived in the port Wednesday, is the first of the 15 tankers planned to carry gas from the project.
The tanker can travel west of Sabetta year round and carry gas east via the Northern Sea Route between July and December, Sovcomflot said.
Russia's president Vladimir Putin, who tuned in from another Northern city of Archangelsk via broadcast link to welcome the tanker, praised the project's role on the global scale.
"This is a big event," Putin said. "If we keep moving at this pace, which I must say is rather impressive even to me...then Russia not only can but will become the largest LNG producer in the world."
Yamal LNG will have taken four years from the investment decision to the launch of the first train.
Russia, one of the world's largest gas producers, so far has one operating LNG project, the 9.6 million mt/year Sakhalin 2, in the Far East of the country.
COMPETITIVE YAMAL PROJECTS
Yamal LNG has nearly fully contracted the project's volumes, "90% or maybe even 100% of which will go to the Asia-Pacific region," Mikhelson said. Despite a well-supplied LNG market, which has led to numerous LNG projects being postponed around the world, Yamal LNG has a competitive advantage due to low production costs, Pouyanne said.
"This is the largest complex today being built in the world. And it is very competitive," he said. "There is a huge amount of gas...you cannot compete with such low production costs, [as in Yamal peninsula] and because of the large size of the plant, the cost of the liquefaction," Pouyanne said when asked whether he sees Yamal LNG as competitive against US LNG.
"It is much more competitive than many projects that will be developed in liquefied [natural] gas. It is very competitive, both Yamal and the following phase of Yamal," Pouyanne said, referring to the mirror Arctic LNG 2 project, which Novatek plans to build in the Gydan peninsula across the Bay of Ob in 2022-23.
Novatek CFO Mark Gyetway earlier estimated total cost of feedstock, liquefaction and shipping at slightly under $3/MMBtu.
Total -- which has repeatedly stated its commitment to working in Russia even with western sanctions complicating the involvement of foreign companies in Russian oil and gas projects -- is looking to continue cooperation with Novatek, potentially also on its next LNG plant, Pouyanne said.
"Yamal LNG was only the beginning of partnership with Novatek," he said.
Novatek expects to take the investment decision for the Arctic LNG 2 in around 18 months, Mikhelson said.
--Nastassia Astrasheuskaya, firstname.lastname@example.org
--Edited by Jeremy Lovell, email@example.com