Making vital parts key to Sino-Russian energy partnership

China-made parts vital to a major LNG facility are due to arrive in northwestern Russia this month, marking a milestone in the nations' energy cooperation.

The two modules, the largest and heaviest elements of the Yamal liquefied natural gas project in Sabetta, Siberia, were shipped from Qingdao, on China's east coast, on April 28.

The parts are among the 36 to be built by China Offshore Oil Engineering Corp, the first Chinese company to contribute to a global LNG project.

"The construction is a symbol of the company's mastering of the core technology for manufacturing LNG supplement modules," says Zhou Xuezhong, the company's president. "Our construction shows the implementation of national strategies such as the Belt and Road Initiative and Made in China 2025. It also pushes the upgrade of offshore oil technology, and brings more opportunities for China to participate in global equipment manufacturing."

Completion of the modules on time is extremely important to the project, adds Alexander Fridman, vice-chairman of Russian company Novatek, an investor in the plant.

Once finished, the $27 billion Yamal project will be the world's largest LNG facility with a reserve capacity of more than 1 trillion cubic meters. The first phase, which will produce 16.5 million metric tons of LNG a year, is scheduled to start next year, with the plant expected to go into full operation by 2021.

Novatek holds a 50.1 percent stake in the project, while China National Petroleum Corp and Total SA of France each hold 20 percent. China's Silk Road Fund purchased the remaining share in March.

It is the first time Chinese energy companies have gotten involved with resource exploration, manufacturing, construction and management of a global LNG project, according to Leonid Mikhelson, chairman and CEO of Novatek.

China and Russia signed agreements to enhance energy cooperation in 2014.

Jiang Qi, an executive in charge of Sino-Russian cooperation at China National Petroleum Corp, says the company had been closely observing the Yamal project for a long time and that its negotiations with Novatek had been smooth.

The deal will see the plant provide 3 million tons of LNG to China.

"At present, 3 million tons of LNG accounts for only 6 percent of China's total consumption," he says. "However, China is developing natural gas pipelines faster than anyone else in the world, and the proportion will surely increase."

The Yamal project has received $2.2 billion in financing from Russia's National Welfare Fund and has signed an agreement with Sberbank and Gazprombank on a 15-year credit line for a total $4.1 billion.

In late April, it was announced the project had also reached a deal with the Export-Import Bank of China and China Development Bank on two 15-year credit lines for $10.5 billion and $1.5 billion, respectively.

Combined, the agreements cover the required amount of external funding needed for the project.

Mikhelson says the Chinese banks' contribution was essential, as Novatek is unable to secure loans from firms in the United States due to economic sanctions.

Contact the writers through renqi@chinadaily.com.cn

(China Daily Africa Weekly 05/13/2016 page26)