Russia's Yamal LNG still attractive despite capex hike: analysts

London (Platts)--19Dec2013/721 am EST/1221 GMT

Analysts said Thursday that the increased capital expenditure estimate for the giant Yamal LNG project in northern Russia to almost $27 billion

would not impact on the competitiveness of the venture.

On Wednesday, Yamal LNG partners Novatek and Total gave final approval for the development, but also raised the capex to $26.9 billion from a

previous estimate of around $20 billion.

"Despite the higher figure, Yamal LNG remains a highly competitive project in the global arena," analysts at Moscow-based Alfa Bank said

Thursday in a note.

They said that the breakeven LNG price for the project would now be around $8.20/MMBtu, higher than a previous $7.40/MMBtu forecast under the

$20 billion capex scenario.

"Despite the higher breakeven price, the project remains highly competitive due to its key advantages," Alfa Bank said.

These are: the onshore conventional gas field feeding the project; LNG trains located right on the field, which significantly reduce transportation

costs; and highly beneficial tax concessions granted to the South-Tambeyskoye field.

The Yamal LNG project on Russia's Yamal Peninsula will comprise three LNG trains, with a total production capacity of 16.5 million mt/year, and

target export markets, specifically the growing Asia-Pacific region.

The first train is scheduled to begin commissioning in late 2016 before starting commercial operations in 2017, with the second and third planned

in 2017 and 2018, respectively.

The project consists of the development of the South-Tambeyskoye gas condensate field and the construction of the liquefaction plant on the

Yamal Peninsula.

PROJECT DELAYS?

Analysts at Russia's VTB Capital also welcomed the FID, but cautioned that the project could be hit by further cost overruns and delays given its

complexity.

"Overall we believe that the news might be treated positively," VTB said.

"[But] such complicated projects usually tend to require more investment in the process of construction -- we are maintaining our cautious view on

the project."

VTB added that the project is located in a remote area and that exports by pipeline may have been easier.

"It is technically complex, with no support in harsh climate conditions, and we believe there are potentially more easily available and cheaper

options to evacuate gas, i.e. through a pipeline. We do not rule out further delays in the project."

Alfa Bank said, though, that higher costs are not unusual for large LNG projects.

"Capex increases occur regularly on LNG projects worldwide and Novatek is no exception," they said. "Yamal LNG remains attractive."

Tehran wants India to extend Dec 27 deadline for accepting Iranian oil tankers: sources

Singapore (Platts)--19Dec2013/555 am EST/1055 GMT

Iran has sought additional time from the Indian government to resolve a stalemate regarding India's insistence on getting financial guarantees from

Tehran before New Delhi renews its approval allowing crude shipments on tankers with Iranian insurance cover, a source at India's Directorate

General of Shipping said late Wednesday.

DGS, which is India's shipping regulator, had sent a letter earlier this month to its Iranian counterpart seeking a bank guarantee worth

approximately Rupees 23 billion ($400 million) through an Indian bank to cover any potential liability in the event of maritime accidents in Indian

waters.

The DGS source said Iran has sought an extension from India on the approved period for accepting tankers with Iranian insurance cover, which is

due to expire on December 27, until the matter is decided at the diplomatic level. The DGS grants approval allowing ships with Iranian insurance

cover to enter Indian ports on a quarterly basis.

"They [Iranian authorities] have not rejected our suggestion but have sought additional time," said the DGS source based in Mumbai

An Indian government committee looking into the matter is scheduled to meet Friday to examine the response from the Iranians before making a

recommendation to the petroleum and natural gas ministry, the source said.

The EU in July last year banned the import of Iranian crude by its member countries and also the provision of EU-linked insurance which included

protection and indemnity cover for any shipments of Iranian crude, regardless of destination.

The insurance ban had a significant impact beyond Europe because most key shipping cover across the world was tied back to EU insurers at the

time.

P&I Clubs provide insurance cover for broad, indeterminate risks such as third-party liabilities, which include a carrier's liability to the owner of a

cargo for damage to the cargo, the liability of a ship after a collision, environmental pollution and war risk insurance.

Since the ban, the National Iranian Tanker Company's tankers have been deployed to deliver crude to Tehran's customers in India.

TEHRAN INITIALLY REJECTED INDIAN DEMAND: IRAN SOURCE

According to an Iranian source following the matter, Tehran initially rejected India's demand for a financial guarantee when it was first

communicated to them.

"The Indians asked for financial guarantees from Iran. We told them we can't. We already have a $1 billion cover on Iranian tankers. They wanted a

financial guarantee of $400 million for ships calling there [in India]," the Iranian source said this week.

"If they [Indians] don't want Iranians to deliver the crude, then the Iranians will not send their ships. Currently they are talks to explore the chances

to get a three-month extension on the approval period which is expiring on December 27."

INDIA MAY SOFTEN ITS STAND: SHIPPING SOURCES

The partial and temporary easing of sanctions against Iran last month by the US and the EU in return for a freeze on Iran's nuclear program

includes the revoking of the shipping insurance ban.

However, with Western P&I clubs yet to receive any official confirmation on the removal of the ban, Indian crude buyers still need to depend on

Iranian tankers to receive Iranian crude.

Currently, Iranian tankers have insurance cover provided by the homegrown Kish P&I Club, which curtails the chances for these ships to be hired

by most Western and Asian charterers.

Meanwhile, many shipping market participants believe that India will have to accede to the Iranian request for an extension because it needs to

maintain its supply of oil imports.

"I anticipate another extension of [few] months will be given" so that the Iranian ships can continue to discharge crude oil at the Indian ports, an

Indian tanker broker said. "Otherwise, how will the oil come to India?"

The Indian petroleum ministry will take a more sympathetic view of the Iranian stand than the shipping regulator, considering the fact that Indian

companies such as Mangalore Refinery and Petrochemicals Limited are dependent on the Middle Eastern country for their oil requirements, the

broker said.

India's imports of Iranian crude fell to 13.3 million mt in the fiscal year ended March 2013, from 18.1 million mt in the previous fiscal year. Over April-

November this year, India has imported around 6.5 million mt of crude oil from Iran.

India has said in recent months it wants to increase crude oil imports from Iran to curtail dollar outflows as the country struggles to reduce its

current account deficit. India has been settling 45% of its crude oil import bill with Iran in rupees.