Big news in energy project finance this week, with a mega-project that no one thought could succeed coming through with a massive finance package.
That’s the Yamal liquefied natural gas (LNG) export terminal in northern Russia. A multi-billion dollar development that appeared dubious just a few months ago — as sanctions against Russia seemed to be preventing project financing from going forward.
But Yamal’s Russian owners confirmed over the weekend that they have just put together a significant portion of the funds needed to build the terminal. These funds have come from a place where sanctions have little meaning — China.
Yamal’s Director General said that the project consortium signed a loan agreement Friday with China Exim Bank and the China Development Bank. With these banks offering to extend a 15-year loan to the project in the amount of 9.3 billion euros.
That’s about 75 percent of the estimated total funds that Yamal needs to get into production and represents a major step toward getting the project off the ground.
One of the most interesting stories here is the increasing involvement of China in the Russian energy sector. With LNG projects like Yamal having been a particular target of Chinese interest recently — evidenced by China’s Silk Road fund agreeing to take a 9.9 percent stake in the project last December.
The emerging importance of the new Silk Road trade area is a theme we’re going to see more and more in natural resources, with Russia clearly in China’s sights as an energy and trade corridor. Likely being particularly attractive due to the lack of competition here in the wake of Western sanctions.
The other interesting part of the Yamal deal is currency. With the Chinese loan package being denominated in euros rather than dollars — showing the players here may be making a concerted effort to move beyond the reach of America.
The project still needs to raise more funds — with project partner Total saying last week that another $4 billion could be coming from Russian banks. Watch for more news on financing for this key project, and for other deals between China and Russia in the energy space.