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Pavilion Energy eyes role in LNG project backed by Russian tycoon

The Business Times by TAN HWEE HWEE

Singapore

TEMASEK-INVESTED Pavilion Energy is mulling over a role in the US$25.5 billion liquefied natural gas (LNG) project dubbed Arctic LNG 2, to be developed by Russia's largest independent gas producer, Novatek.

This is one potential area for collaboration outlined in an agreement signed by chairman of Novatek's board and Russia's second richest man, Leonid Viktorovich Mikhelson, and Pavilion Energy's group CEO, Frederic Barnaud.

This deal, signed on the sidelines of Russian President Vladimir Putin's visit here, called on Pavilion Energy to evaluate participation in, and offtake arrangements with, the Novatek Arctic LNG 2 project .

The partners will also look at collaboration in LNG supply, trading and optimisation. They will review joint investments and capacity leasing arrangements for LNG carriers, storage, reload and trans-shipment facilities.

The signing of the deal on Tuesday signals the intent of the two parties to deepen their LNG ties after their first transaction.

The Business Times understands Pavilion Energy has already taken in a cargo from Novatek's Yamal LNG project that was shipped via Russia's North Sea Route.

Novatek has beaten expectations to complete the first Yamal trains on time and within budget. It has since moved on to pursue its second major project in Russia's LNG space. Its Arctic LNG 2 project involves the construction of three LNG trains each with 6.6 million tonnes per annum (mmtpa) of capacity.

Arctic LNG 2 ranks among the biggest LNG export projects in the world. Wood Mackenzie's director for gas and LNG research, Nicholas Browne, noted that Arctic LNG 2's nameplate capacity is larger than Chevron's 15.2 mmtpa Gorgon LNG project in Australia and almost matches up with Cheniere's 22.5-mmtpa Sabine Pass project in the US. Cheniere is planning to sanction one more train for Sabine Pass next year.

Novatek has received strong state support for its Yamal LNG project and this is expected to extend to Arctic LNG 2, given that Russia wants to expand its clout in global LNG trade to rival that of the US and Qatar.

If Pavilion Energy chooses to come onboard Arctic LNG 2 as an equity investor, it may join others reportedly waiting in the wings - Saudi Aramco, France's supermajor Total and South Korea's Kogas to name a few.

But Arctic LNG 2 also needs to secure offtakers before it can stand a chance to take off ahead of other competing projects. Considering this, Mr Browne said: "If Novatek can sign an offtake contract in Singapore, it will be an important step forward to bring the project to a target final investment decision next year."

Pavilion Energy's Mr Barnaud said that this potential partnership coming on the back of Novatek's "impressive success in the LNG world" reinforces the Temasek-linked LNG player's "expansion... regionally and globally" from its anchor out of Singapore.

A partnership with Novatek may open up for Pavilion Energy, an avenue to also tap Russia's voracious appetite for LNG shipping and infrastructure. Mr Browne estimated that billions of dollars are now being spent on developing ice-breaking vessels, port facilities and a trans-shipment terminal sited along Russia's Kamchatka Peninsula.

All these are supposed to provide for year-round shipping to take place via Russia's North Sea Route in the Arctic waters. This is crucial for the country to stake its claim as a major global LNG player, Mr Browne explained.