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Exxon pushes ahead with Rosneft LNG project despite sanctions

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LNG Industry,

Reuters are reporting that Exxon Mobil is pushing ahead with efforts to develop its US$15 billion Far East LNG project with Russia’s Rosneft despite being forced to exit some joint ventures due to Western sanctions.

Two months ago Exxon invited companies including China National Petroleum Corporation’s engineering arm to bid for construction contracts by October.

A final investment decision is due in 2019.

The project is being jointly developed with Rosneft using gas from the Sakhalin-1 venture which will be chilled into liquid to underpin the LNG plant’s initial annual output target of 6 million t.

Western sanctions forced Exxon to exit some joint ventures with Rosneft in late February, but LNG is not part of the sanctions. The Russian company said the move would not affect the Sakhalin-1 oil and gas production-sharing JV struck in the mid-1990s.

“The Sakhalin-1 consortium continues to explore every opportunity to monetize Sakhalin-1 gas resources,” Exxon spokeswoman Julie King said.

“A liquefied natural gas plant is an option to maximize benefits to the consortium and the Russian state and its citizens,” she added.

Exxon-Rosneft have also held discussions about feeding gas from Sakhalin-1 fields into a planned third production unit at an existing LNG plant run by Gazprom on Sakhalin Island.

Exxon’s LNG footprint is expanding rapidly with major new projects planned in Qatar, Mozambique, Papua New Guinea and the US as demand in China and Southeast Asia booms.

Gas accounted for 43% of Exxon output last year, according to BMO Capital Markets, a share set to rise as new LNG projects start up.

CNPC’s Huanqiu Contracting & Engineering Corp is preparing to bid for engineering, procurement and construction (EPC) contracts for Far East LNG’s supporting facilities, such as storage tanks, pipelines and utilities.

Chinese engineering companies, banks and shipyards are all muscling into LNG, typically the preserve of Western, Japanese and South Korean players, as government coal-to-gas switching policies make LNG an increasingly strategic fuel.

For example, Chinese investment is pouring into African floating LNG projects, import terminals, tankers and traditional land-based plants such as the US$12 billion invested in Russia’s Yamal facility, used to skirt Western sanctions.

Loans in turn drum up business for Chinese engineering firms and shipyards in LNG, and give state-backed companies the upper hand in supply negotiations.

It is unclear if Chinese lenders will help finance Far East LNG.

The bid deadline for EPC contractors is 30 September.

A consortium of Japan’s JGC and Texas-headquartered Fluor Corp will handle the core work of project managing and building the liquefaction trains and other key components.

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