Italy freezes loan for Russian Arctic LNG 2 plant

Russia's invasion of Ukraine has prompted Italy to put a hold on its share of financing for the $21-B Arctic LNG 2 project led by privately-owned Russian gas producer Novatek, two sources close to the matter told Reuters on Tuesday. 

Western allies have taken unprecedented steps to isolate Russia's economy and financial system following the assault on Ukraine, which Moscow calls a "special operation." 

"The energy sector has so far been spared, but sanctions targeting the industry remain on the table," White House press secretary, Jen Psaki said on Monday. 

The potential for more sanctions has prompted Italy to rethink its loan to the natural gas plant, which sources have put at €500 MM ($561 MM). 

Italian state lender Cassa Depositi e Prestiti (CDP) and the Russian arm of Italy's biggest bank Intesa Sanpaolo had agreed in recent weeks to help finance Novatek's project.

The loan was set to be guaranteed by SACE, Italy's export credit agency, which has already insured nearly €5 B worth of projects and investments relating to Russia.

Speaking on condition of anonymity given the sensitivity of the matter, the sources said the loan had not been disbursed and CDP and Intesa would now sit tight given the situation - joining a raft of companies curbing ties with Russia.

The agreement remains in place, however, a third source close to the matter said. 

All interested parties declined to comment. 

Italy, which last week announced measures to boost domestic gas production to around 5 Bm³y from the current 3.2 B, is looking to diversify its gas supplies to reduce dependence on Russia. 

Before the Ukraine conflict, Arctic LNG 2 was expected to be launched in 2023 and reach full production capacity of almost 20 MMtpy of LNG in 2026. 

Novatek announced in November loan agreements with foreign and Russian banks worth €9.5 B, securing the external financing needed for the project. 

The shareholders of Arctic LNG 2 are Novatek (60%), TotalEnergies (10%), China's CNPC (10%) and CNOOC (10%), as well as Japan Arctic LNG (10%), a consortium of Mitsui & Co, Ltd. and JOGMEC.

Representatives from the European Parliament last year expressed concern about potential support from EU member states for Arctic LNG 2 which, they said, was not compatible with climate targets.

(Reporting by Giuseppe Fonte in Rome Additional reporting by Valentina Za and Stephen Jewkes in Milan Editing by Mark Potter) 

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