Chinese regional gas importer and distributor Zhejiang Energy Group is joining the privately led Yakutia liquefied natural gas project in Russia’s far east after signing a preliminary agreement to take 10% equity stakes in two related operators.

News of the agreement emerged as Upstream was told the project operator is evaluating offers from three bidders battling to land the soon-to-be-awarded front-end engineering and design contract for the challenging project.

State-owned Zhejiang's decision on the Yakutia LNG scheme follows a recent binding agreement that the corporation signed with Russia’s largest gas producer Novatek for the supply of 1 million tonnes per annum of LNG from the Novatek-led Arctic LNG 2 project to receiving terminals in China’s Zhejiang province.

Moscow-based investment house A-Property, the Yakutia LNG project proponent, said this week that a wholly owned subsidiary of China’s Zhejiang Energy International will buy 10% stakes in two Russian companies — the regional gas and condensate producer Yatek, and Globaltek, which will operate the planned LNG plant in East Siberia’s Yakutia republic on Russia’s far east coast.

A spokesperson for A-Property — which controls Yatek and Globaltek — told Upstream it had shortlisted three bidders for FEED work covering the LNG plant, with a contract scheduled for award by the start of February.

In 2020, what was then TechnipFMC — but which is now Technip Energies — completed a pre-FEED study for the project.

Technip Energies is understood to be bidding for the new FEED contract and, Upstream learned, is competing against a Japanese-Norwegian pairing and a US-based engineering contractor.

The names of companies involved in the Japanese-Norwegian venture and a US-based engineering contractor could not be confirmed as Upstream went to press.

However, contractors such as JGC, Chiyoda, Kvaerner and McDermott could potentially be in the running.

Sources close to the scheme said that one development concept being considered seriously is to install the liquefaction facilities on top of an offshore concrete gravity based structure.

Another fixed platform solution is also on the table, Upstream understands, but a floating LNG proposal has now been dropped.

The advantage of a GBS solution is the previous experience that Russian yards have had in building this type of structure — in Sakhalin Island, for example.

A source close to Technip Energies remarked that the project economics are a challenge and that the development cost — in the early engineering phase, at least — was an issue.

A-Property's spokesperson said the Russian design institute Giprovostokneft has been contracted to carry out front-end engineering and design work for the pipeline, with this work anticipated to be completed in about 18 months.

A-Property said that a preliminary assessment of the value of the LNG project is €5 billion ($5.8 billion), which implies a total possible payment of €500 million from Zhejiang for its 10% shareholding.

Zhejiang's deals are anticipated to be finalised by October this year following due diligence and regulatory approvals.

Yatek is headquartered in the city of Yakutsk and holds licences for several producing gas fields and large prospective blocks in Yakutia.

The company hopes ongoing exploration at these assets will confirm sufficient gas reserves to underpin its LNG ambitions.

Reserves to be confirmed

A-Property said it expects gas reserves under Yatek’s control to increase to 567 billion cubic metres in the third quarter of this year, rising to as much as 1 trillion cubic metres by 2025.

According to A-Property, Yatek is expected to oversee the construction and operations of a planned dedicated 1358-kilometre gas pipeline that will carry volumes from Yakutia to the LNG export plant in Russia’s far east.

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