Russian energy producer Rosneft may have to delay development of its liquefied natural gas (LNG) plant on the Pacific island of Sakhalin for at least two years, sources said, after prices fell and financing all but dried up due to Western sanctions.
The delay is the latest blow to Rosneft, which has also been forced to suspend drilling at an oil project in the Arctic after sanctions imposed on Russia by the West over the Ukraine crisis halted co-operation with ExxonMobil.
Rosneft, which has spearheaded President Vladimir Putin’s drive to increase oil and gas output and secure Russia’s energy dominance, signed an agreement with Exxon in 2013 that aimed at starting production of 5 million tonnes per year of LNG from 2018 at Sakhalin.
Largest exporter
Russia is the world’s largest exporter of natural gas, but mostly exports it by pipeline to customers in Europe. Once liquefied, natural gas can be transported by ship to customers in Asia, helping fulfil the Kremlin’s goal of finding new markets.
Two sources with direct knowledge of the project said the 2018 target was no longer realistic.
A source at Rosneft, who declined to be named because he was not authorised to speak to the media, said the plant would most probably “be postponed for three to five years because of lack of funds and low fuel prices”.
A second source said it could be delayed for two years.
A Rosneft company spokesman said there had been no change to the project’s timeline.
Financing cut off
State-controlled Rosneft has struggled financially under sanctions imposed a year ago over the Ukraine conflict, which have all but cut it off from financing from US and European capital markets.
Run by Putin ally Igor Sechin, the energy producer has run up record debts of 2.47 trillion roubles, much of it to buy out the stake of Britain's BP in a joint venture in 2013.
It has since asked the state to give it around 1.3 trillion roubles from the country’s rainy day National Wealth Fund to help finance various projects.
The firm needs to cover about $16 billion (€14.7 billion) in payments to Western banks this year.
With fewer funds available after budget revenues were hit by falling oil prices, the government has yet to say how much it can offer Rosneft as it weighs the needs of several state companies which have few sources of financing.
Reuters
