Meeting with NOVATEK CEO Leonid Mikhelson

Mr Mikhelson briefed Vladimir Putin on NOVATEK’s operations on the domestic gas market, in particular, on the Yamal LNG project.

Novo-Ogaryovo, Moscow Region
With NOVATEK CEO Leonid Mikhelson.
With NOVATEK CEO Leonid Mikhelson.

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President of Russia Vladimir Putin: Mr Mikhelson, our atomic icebreakers are currently taking a Russian vessel carrying a Norwegian cargo (LNG – liquefied natural gas) along the northern route to Korea. Indeed, a record quantity of freight has been shipped via the Northern Sea Route this year, and the navigation season has lasted a record long time. It is good to see that our vessel and our icebreaker are working there. In this respect, I want to ask you how the work on the Yamal LNG project is going?

chairman of the Management Board of Novatek Gas Company Leonid Mikhelson: Everything is going to plan, Mr President. Our partner does not have a big stake (Total holds a 20 percent stake), but it is a reliable partner, and the most important thing is that everything is going to plan. We have almost completed the preliminary FEED project design work and have submitted the project for evaluation. We have productive cooperation with the State Expert Evaluation Department and with environmental evaluation officials, and we are thankful to them for this. We expect to get the results from them within a month.

A tender for EPC contracts is underway. We should have all the bids in by the first half of December, and we will then have practically all the information and permits we need to examine the investment decision.

Vladimir Putin: Your company, together with Gazprom, or Gazpromexport, rather, is responsible for the work to conclude preliminary contracts for LNG exports to the main customers abroad. We know the procedures for this kind of work and know that investment can be raised only — or chiefly at least — on the basis of existing contracts. I hope therefore that, though little depends on you here, you will nonetheless carry out this work together with Gazprom very soon. 

Leonid Mikhelson: We held a big road show on all the markets and already have preliminary proposals. Once we get the final proposals from the EPC contractors we will be able to give a guaranteed date for filling the first tanker and will be able to sign sales contracts. There are some small technical matters related to our legislation that we will need to settle in order to open the way for project financing. Perhaps I could present a written report on this matter later. 

The main thing is that we are keeping to schedule. It is also very important that the instructions given in the December 2010 resolution are also being carried out as planned, and for this we say a big thank you to the Transport Ministry and other agencies.

We have begun the work on building a seaport at Sabetta. We are also building an airport in the settlement of Sabetta. A contract for building the first new atomic icebreaker has been signed. The authorities support this project and everything is being carried out as per the resolution.

Vladimir Putin: I discussed this matter recently with Gazprom’s heads and I think that the future port’s capacity could be expanded. It could definitely become a multipurpose port. I ask you to work on this matter together with your colleagues and with the Transport Ministry.

Leonid Mikhelson: We looked at the matter of how in principle to organise an investment project for building a branch railway line to Sabetta from Gazprom’s line to the Bovanenkovo field. The big issue is not so much finding the investment as the tariff policy – having a common tariff and having Russian Railways responsible for all of the transportation. This is the real question. If we have the railway there then the port really will be a multipurpose facility.

Vladimir Putin: This is what we must do then, all the more so as the state authorities are going to invest in the canal leading to the port anyway. Every ruble invested must be spent as effectively as possible.

Leonid Mikhelson: Of course.

Vladimir Putin: What is your situation today on the domestic market?

Leonid Mikhelson: We are developing well on the domestic market. We will sell more than 60 billion cubic metres of gas this year and plan for sales of around 70 billion cubic metres next year, taking into account the volumes we purchase from SIBUR.

Our strategy of choosing the best customers was probably not entirely the best, and so two years ago we changed it and are now working as Gazprom does, following the regional principle. We cover almost all of Chelyabinsk Region and are looking at other regions too, the housing and utilities sector and households, and we are also looking at developing gas distribution organisations and working with new customers.

The problem we have run into, Mr President, is that, unlike the segment under Gazprom’s high pressure, the lower segment of the domestic gas market is still working according to rules set forth 20 years ago and that are completely unsuitable for today’s situation with regards to all the permits, approvals and fuel regimes. Small and medium-sized business and little enterprises all want to get gas and end up spending from 18 months to 3 years going through all the procedures. If possible, we would like to make our proposals on how to change this situation and speed up development of this segment of the domestic market. I think that consumption of more than 10,000 cubic metres a year requires fuel regime approvals from the Economy Ministry.

Vladimir Putin: Put your proposals on paper and I will ask our colleagues at the Energy Ministry to go through them together with you and Gazprom.

Leonid Mikhelson: Thank you, Mr President.

Vladimir Putin: That’s agreed then.



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