Mitsui, Jogmec to Invest $3 Billion in Novatek's Arctic LNG Plant

(Bloomberg) -- Russia’s largest liquefied natural gas producer, Novatek PJSC, signed a basic agreement to sell a 10% stake in its future Arctic LNG 2 plant to Japan’s Mitsui & Co. and state-backed Jogmec.

Investments in the project by the Japanese companies will reach about $3 billion, Russian President Vladimir Putin said after talks with Japanese Prime Minister Shinzo Abe at the G-20 summit in Osaka. The accord broadens Japan’s access to LNG amid uncertainty over the future of the country’s energy mix.

The agreement appears to finalize Novatek’s search for partners in the project. The Russian company, which has already sold 10% stakes in the venture to France’s Total SA, China National Petroleum Corp. and Cnooc Ltd., still intends to retain 60%, Chief Executive Officer Leonid Mikhelson said Saturday.

The Arctic LNG 2 plant is set to become Novatek’s next LNG facility in Russia’s far north after Yamal LNG, which has been supplying markets in Europe and Asia with the super-chilled fuel since2017. The future plant, with a budget of as much as $21 billion and a capacity of 19.8 million tons a year, is expected to come online in 2022-2023. Novatek plans to make a final investment decision on the facility by the end of this year.

Participation in the Arctic LNG 2 project will provide Mitsui and Jogmec -- known formally as Japan Oil, Gas & Metals National Corp. -- with a long-term “offtake” of about 2 million tons of liquefied gas a year, Novatek said in a statement.

The Russian company this week started LNG deliveries to Japan from Yamal LNG under a long-term offtake agreement with Total. “Japan is an important LNG market and one of the priority destinations in our LNG marketing strategy,” Mikhelson said at the time.

The deal with Japan also helps further Novatek’s ambition to place Russia among the world’s top four LNG producers through its Arctic projects. The company currently targets output of 57 million tons to 58 million tons of liquefied gas by 2030, and may increase that to as much as 70 million tons.

Japan may need to raise its imports of LNG in the next decade, defying market expectations for a slowdown in demand, Kazunori Kasai, the head of Jera Co.’s Singapore-based trading unit, said earlier this month. The share of nuclear in Japan’s energy mix could turn out to be lower than envisaged in the government’s strategic plan, while coal faces environmental restrictions, Kasai said.

Novatek is already making plans for a third LNG facility in the Russia’s Arctic region, which could start production a year after all of the Arctic LNG 2 units come online.

To contact the reporters on this story: Dina Khrennikova in Moscow at dkhrennikova@bloomberg.net;Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Amanda Jordan

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