International lenders back $9.5bn financing for Russian gas project

Europe’s bankrolling of LNG projects is facing increasing criticism. (Reuters)
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Updated 19 September 2020

International lenders back $9.5bn financing for Russian gas project

  • Russian top lender Sberbank has already earlier said it was ready to provide more than €2.7 billion ($3.2 billion) in financing for the project, which aims to process gas from the Gydan Peninsula and ship 80 percent of LNG to Asia

LONDON: International lenders have lined up about $9.5 billion in financial support for a Russian Arctic liquefied natural gas (LNG) project, a document seen by Reuters showed, even as such projects come under greater scrutiny over climate concerns.
The $21 billion project, which received final investment approval a year ago, is expected to be launched in 2023 and to reach its full capacity of almost 20 million tons per year in 2026.
While the energy industry touts natural gas as a cleaner alternative to coal or crude, it is a source of carbon emissions and critics say LNG projects are hard to reconcile with the transition to low-carbon economy envisaged in the Paris climate agreement and the EU’s Green Deal economic plan.
The interest of international institutions, however, gives a boost for the Arctic LNG 2 development, led by Russian non-state company Novatek as Moscow’s plans to raise its share in the global LNG market.
Among them is French state investment bank and credit agency Bpifrance, with an offer of $700 million in credit finance and Germany’s Euler Hermes, with a covered facility of $300 million, the document said.
Alongside Bpifrance’s support, the document said a number of other state-backed institutions are also expected to help fund the project including the China Development Bank, which is expected to offer a facility equivalent to $5 billion.
The Japan Bank for International Cooperation is also seen providing a facility of $2.5 billion; an unnamed Russian bank $1.5 billion and Italy’s SACE a covered facility of $1 billion.
Russian top lender Sberbank has already earlier said it was ready to provide more than €2.7 billion ($3.2 billion) in financing for the project, which aims to process gas from the Gydan Peninsula and ship 80 percent of LNG to Asia.

HIGHLIGHTS

• Bpifrance among backers of Arctic LNG 2.

• Financing could yet be rejected by French government.

• Project is charged with political, climate issues.

The lineup described in the document, if backed in full, would cover the need for the external financing, earlier estimated by Novatek at $9 to $11 billion.
The project’s equity partners include France’s Total, China National Petroleum Corp, China’s CNOOC and the Japan Arctic LNG consortium made up of Mitsui & Co. and state-owned JOGMEC, formally known as Japan Oil, Gas and Metals National Corp.
While Bpifrance’s recommendation, detailed in an internal document, comes with caveats and could yet be rejected by the government, its support highlights the importance of
the project for one of France’s industrial champions.
The document said Bpifrance Assurance Export gave a “favorable opinion” to the strategic project guarantee “subject to subsequent examination of the project’s risk profile and its economic fundamentals” and with a “strong reserve” waiting for the finalization of the environmental and social analysis.
Bpifrance and Total both declined to comment and Novatek had no immediate comment.
Relations between Europe and Russia, including energy, remain tense after a poisoning attempt of Russian opposition politician Alexei Navalny sparked calls for another key energy project between the two, Nord Stream 2, to be ditched.
The role of European development institutions in bank-rolling LNG projects around the world has also come under greater scrutiny given EU’s ambitious climate goals.
Export credit agencies such as Bpifrance provide government-backed loans, guarantees, credits and insurance to private companies to help make it easier for them to do business abroad.
A spokeswoman for JBIC, which has already announced one loan for up to €125 million to help Mitsui & Co. and the Japan Oil, Gas and Metals National Corporation take an equity stake in the venture, declined to comment on the Bpifrance document as she could not confirm the figure.
SACE declined to comment. CDB did not immediately reply to a request for comment. Euler Hermes directed the question to the Federal Ministry of Economic Affairs and Energy.
The ministry said it was not “not authorized to provide third parties with any information in this respect.”


‘The stock market, stupid’ — Trump’s claim is looking hollow 

Updated 17 min 6 sec ago

‘The stock market, stupid’ — Trump’s claim is looking hollow 

  • The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency
  • The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost

Before the US election of 1992, candidate Bill Clinton summed up what he saw as the reason he would become president: “It’s the economy, stupid.” He was proved right as voters disowned the economic policies of President George H.W. Bush in their droves to elect Clinton. 

Until the COVID-19 pandemic began to ravage the US economy in March, President Donald Trump would have been able to make the same claim. For the four years of his presidency, the US economy had continued the progress initiated by his predecessor to recover from the 2009 global financial crisis.

By most measures — growth, employment, inflation — the Trump years had been good, and those on the top of the pile had even more reason to be grateful thanks to the big tax cuts he had made a flagship policy.

The pandemic changed all that in the space of a few weeks as lockdown measures shocked the economy. Jobless claims soared to all-time records, bankruptcies and closures affected large swathes of American business, and gross domestic product collapsed. The International Monetary Fund forecasts that the American economy will shrink by 4.3 percent this year.

But Trump could still claim instead that “it’s the stock market, stupid” as a reason he could be re-elected. Mainly because of the trillions of dollars injected into the economy in the form of fiscal stimulus, US share indices had swum against the economic tide.

The S&P 500 index hit an all-time high in September, allowing Trump to boast that under his administration, investors and the millions of people whose livelihoods depended on the financial industry had never had it so good.

Now, it looks as though even that final claim is looking more fragile. For the past couple of days, US and European stock markets have gone into reverse as investors took fright at the rising number of COVID-19 cases and the re-imposition of economic lockdowns in many countries.

Trump might argue, with a little justification, that Wall Street is worried about the prospect of Joe Biden being elected president by the end of next week. Certainly the contender, by definition, is something of an unknown quantity in terms of economic policy.

He is also known to favor some policies — such as tighter regulation on environmental sectors, more spending on health care, and higher taxes for federal services and projects — that have traditionally been regarded as contrary to the philosophy of “free market” America.

In particular, the energy industry is worried about possible restrictions on shale oil and gas production that Biden and his “green” team are believed to favor. However, it should be pointed out that the Democratic candidate has specifically said he will not ban shale fracking, as some environmentalists want.

In any interesting side-story, the state of Texas — one of the biggest in terms of electoral college votes — would seem to have more to lose than any other if the energy scare stories about Biden were true. Yet the contest there between Democrats and Republicans is the closest it has been for decades, according to opinion polls.

The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency and a sign of his deal-doing prowess. If even this claim is denied to him in the final week of campaigning, it would make the uphill battle against the polls even more difficult.

There is a chance that Big Tech might offer some relief. The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost, given that they were the ones largely responsible for the big market gains earlier in the year.

But for Trump, any such respite might be too little, too late. It looks as though Wall Street and Main Street are finally catching up in their gloom, and there is nothing the president can do about it.