Despite Ukraine crisis, Total stands firm on Yamal LNG plans in Russia

By TARA PATEL
Bloomberg

Total is pushing ahead with a giant Russian natural gas project in the Arctic as escalating fighting in Ukraine raises the specter of tougher sanctions.

“I am doing everything,” to make progress, CEO Christophe de Margerie said in an interview on Yamal LNG. “There no reason to think that it won’t happen.”

The head of Europe’s third-biggest oil company was speaking before a key meeting this weekend on the future of the $27 billion endeavor led by OAO Novatek.

Designed to produce liquefied natural gas on the Yamal Peninsula, a province above the Arctic Circle estimated to hold enough fuel to meet global demand for five years, the project is central to Total’s plans to boost output and Russia’s bid to export more LNG.

The French company and China National Petroleum Corp. are partners with 20% stakes alongside the Russian company, with 60%.

Uncertainty about how the project will progress has increased after the US and Europe adopted sanctions against Russia following its annexation of Crimea and the Kremlin’s support for pro-Russian separatists in eastern Ukraine.

President Barack Obama warned of “more costs and consequences” after what the US and Europe say is an upsurge in Russian troop incursions into the region.

“We have to do this project,” de Margerie said in the interview. “The reserves are there, the market is there and we need it. It is already almost half-completed. There are a lot of companies involved and many of them are American.”

Business as Usual

His stance is in keeping with a long-held view that commerce and politics should be separate. Following the announcement of a first round of sanctions, de Margerie adopted a business-as-usual approach that took him to St. Petersburg in May to an economic forum shunned by many US executives. There he signed a deal with another Russian company, OAO Lukoil, to seek shale oil in Western Siberia.

The US has imposed sanctions on Novatek restricting its access to capital markets and has placed travel and financial restrictions on billionaire shareholder Gennady Timchenko. European sanctions include a ban on the transfer of technology for deepwater and Arctic oil exploration and production as well as travel bans and asset freezes on some Russians.

The restrictions have led companies like Total and French oil-services company Technip to warn investors of possible financial implications on doing business in Russia.

Chinese Money

Total is evaluating the impact of sanctions and whether they would restrict its ability to work in Russia, chief financial officer Patrick de La Chevardiere said last month on an earnings call. The Yamal LNG project due to start in 2017 is part of Total’s strategy to invest billions of dollars in Russia to raise output.

Executives said Russia may become the company’s largest oil and gas supplier by the end of the decade as plans were being laid for shale projects and an increased stake in Novatek.

Technip CEO Thierry Pilenko raised the possibility last month of lower 2014 profit margins on some activities due to uncertainty about Yamal. Technip was awarded a contract for engineering, procurement and construction.

“Financing is the only problem,” de Margerie said, noting US sanctions restrict funding and not the export of technology while European restrictions have so far left out Russian gas operations.

Chinese banks could fill the gap left by US lenders, he said, a possibility raised earlier this year by Novatek’s shareholder Timchenko. Chinese banks could provide as much as $20 billion for funding for the project, he said.

“Yes, they are there, they asked to come on board, we didn’t go get them,” de Margerie said. “By the end of the year we have to find a solution. We have four months.”

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