LNG Terminal - Yushni creeps closer to becoming a reality

Every now and again I mention LNG and Yushni in the same post and have been doing so since 2010 when I first put my money on Yushni being the eventual location of any LNG terminal for Ukraine.

It seems my prediction was right and that a feasibility study has just been completed for locating it there.  Good news for Odessa as it brings it a step closer to commencement.

The cost for constructing a LNG terminal there has been cited at approximately Euro 800 million.  A further Euro 121 million to create a supply channel for the LNG tankers and Euro 113 million to link the new terminal to the gas transport system.  In total  about Euro 1.3 billion.

That sounds a lot of money, and it is, especially for cash strapped Ukraine.  It is not far off the normative figure for such a terminal however.  The recently completed LNG terminal on the Isle of Grain in the UK came in at slightly over Sterling 800 million.  Scope of works considered, the costs seem about right through a feasibility lens.  The study also states a construction to commission time of 49 months - again about right baring any very nasty surprises.

The major question for now, is how this needed infrastructural terminal will be financed and over what period of time.  The plan, it seems, is to raise 30% from internal investors in Ukraine.  In fact I believe the usual suspects have already agreed to do so, leaving 70% to be funded either by bond sales or other credit arrangements.

It has to be said that Euro 1.3 billion is not a lot of money for the usual suspects should they have wanted to finance it completely and I suspect that a government/State of Ukraine stake in the terminal is therefore non-negotiable and the powers that be have decided  Ukraine will hold the majority stake.

The plan is that the terminal will supply LNG into the Ukrainian system at about $40 per 1000 m3 of gas for its services.  Not a bad service mark-up on the LNG bought from nations like Turkey and even with that service charge added to the price of Turkish LNG it still remains considerably less than the terrible cost to Ukraine of the current gas deal with Russia which still has another 7 years to run.

In fact it may be useful to put the cost of the proposed LNG terminal of Euro 1.3 billion in context with the monthly gas payments to Russian of approximately $1 billion.  Long term and from a diversified energy supply chain viewpoint, quite obviously the proposed LNG terminal makes economic sense.

That being the case, let’s hope that a decision is made promptly and the LNG terminal is given the go-ahead at Yushni.