TotalEnergies takes a $4.1 billion impairment on the Arctic LNG 2 terminal
TotalEnergies has revealed the price that European sanctions have imposed on it for its stakes in the Arctic LNG 2 project, a giant natural gas transmission terminal under development on the northern coast of Russia.
Due to sanctions imposed on Russian banks and other entities in Russia, TotalEnergies decided to cancel its proved reserves for the megaproject in March. In early April, the EU imposed an export ban on European LNG liquefaction technology on Russian producers, increasing the risk that Arctic LNG 2 will not be completed. As a result, the French oil major decided to record a $4.1 billion write-down for the project in its first-quarter results, reflecting the risk to its 10% stake in the project.
The hit to TotalEnergies’ bottom line highlights the new financial risks that come with investing in Russian oil. Prior to the invasion of Ukraine, Arctic LNG 2 was fully funded and on track for completion, with the first liquefaction train expected to be commissioned in 2023. According to TotalEnergies, that schedule may now be in jeopardy.
Arctic LNG 2 is an ambitious liquefaction plant project designed around three gravity-fed structures (GBS), a concrete platform design borrowed from the early days of offshore oil. Each of the three GBS floating platforms will support a full LNG train during transport and installation in the remote Gulf of Ob, located in the northern Russian Arctic.
This design choice simplifies the construction of the plant, as most of the technical work can be carried out close to the established support infrastructure in Murmansk. If completed, each GBS will be towed to the installation site, then partially flooded and sunk on the bottom for permanent mooring.
If completed despite the sanctions, the project will have a total capacity of around 20 million tonnes per annum (mtpa). This would more than double Novatek’s LNG production in the Gulf of Ob; its existing Yamal LNG plant, located across the entrance, produces approximately 16 mtpa.