The sponsors of the Yamal liquefied natural gas (LNG) project in Russia have signed 425 million euros (approx. US$526 million) worth of new loans with a group of European banks. Chinese entities the Silk Road Fund (SRF) and China National Petroleum Corp (CNPC) hold a combined 29.9% stake in the project.

The 14 year loans were provided by banks including Raiffeisen Bank International of Austria and Intesa Sanpaolo of Italy. Guarantees were provided by German export credit agency Euler Hermes and the Swedish export credit agency EKN.

The Yamal LNG project is led by independent gas company Novatek, which has a 50.1% stake. China National Petroleum Corp (CNPC) and Total of France each hold 20%. The Silk Road Fund holds 9.9%.

The Yamal liquefied natural gas project is based in the Yamal Peninsula in the cold north of Russia, above the arctic circle. The ground exists mostly of permafrost. In the language of its native inhabitants, the Nenets, “Yamal” means “end of the land”.

The Yamal LNG project in Sabetta. Photo courtesy of http://yamallng.ru/en/

The project involves construction of an LNG plant plus terminal, with output of 16.5 million tonnes per year. First shipments are expected in 2018.

Yamal LNG’s general director, Evgeniy Kot, says that the latest loan agreement will allow the project to optimize its debt structure: “We have already raised a sufficient amount of financing, and a further reduction of average costs of debt will increase the economic value of the project for our shareholders.”

Yamal already has credit lines with Sberbank and Gazprombank, as well as China Development Bank, China Eximbank and the Japan Bank for International Cooperation. Italian export credit agency SACE and the French export credit agency COFACE are also supporting the project.

In March 2016 Novatek announced the closing of a transaction to sell a 9.9% equity stake in the Yamal LNG project to the Silk Road Fund for a 1.1 billion euros. Earlier, in December 2015, as part of the framework agreement for the transaction, Novatek received a 15 year loan from the Silk Road Fund. That agreement was viewed as an important step for Chinese-Russian cooperation in the energy sector, and was signed in the presence of Russian President Vladimir Putin and Chinese President Xi Jinping.

The Yamal LNG project in Sabetta. Photo courtesy of http://yamallng.ru/en/

The Silk Road Fund is a US$40 billion medium- to long-term investment and development fund established in Beijing in December 2014. The Silk Road Fund makes outbound investment through both the acquisition of equity stakes and the provision of debt financing. The fund focuses on infrastructure, energy/resources, industrial capacity cooperation and financial cooperation, that are all vital to the connectivity of the Chinese economy with the rest of the world.

Novatek is one of the largest independent natural gas producers in Russia. Founded in 1994, the company is engaged in the exploration, production, processing and marketing of natural gas and liquid hydrocarbons. The company’s upstream activities are concentrated in the Yamal-Nenets Autonomous Region, which is the world’s largest natural gas producing area and accounts for approximately 80% of Russia’s natural gas production and approximately 16% of the world’s gas production.

Novatek shares are listed on the Moscow Exchange and the London Stock Exchange.