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GLNG COMMENTARY GLNG
Green light for Arctic LNG-2
Russia’s Novatek has approved its second LNG export project in the Arctic, as it pursues its goal of becoming one of the world’s leading LNG producers
INVESTMENT
WHAT:
Novatek and its partners have taken an FID on Arctic LNG-2.
WHY:
The company had already comimited to the project some time ago.
WHAT NEXT:
Arctic LNG-2 will primarily target Asian markets, helping Russia emerge as a leading global LNG player.
RUSSIA’S Novatek has greenlit the development of its second LNG export project in the Arctic, as it sets its sights on becoming one of the world’s leading LNG producers.
A nal investment decision (FID) on Arc- tic LNG-2, a proposed 19.8mn tonne per year (tpy) liquefaction plant, was taken by Novatek and its partners at the Eastern Economic Forum in Vladivostok on September 5. The $21.3bn project’s o cial approval is seen largely as a for- mality, as Novatek had already committed to its development some time ago.
Novatek nalised Arctic LNG-2’s shareholder structure back in July, a er selling a 10% com- bined stake to Japan’s Mitsui and JOGMEC. Other investors include China’s CNPC and CNOOC and France’s Total, each with a 10% interest. The Russian firm has already begun production drilling and infrastructure devel- opment, and more than 90% long-lead items have already been ordered to ensure its timely start-up in 2023. e terminal is slated to reach its full capacity sometime a er 2026, following the launch of its second and third trains.
Novatek’s con dence in Arctic LNG-2 draws from the successful implementation of its Arc- tic LNG venture, the 16.5mn tpy Yamal LNG terminal. Novatek, Total and Chinese partners successfully managed to implement the $27bn project on time and on budget in late 2017, overcoming low oil prices, sanctions and other obstacles.
Despite having a larger capacity, Arctic LNG- 2’s projected capex is only $21.3bn, as some of the necessary infrastructure has already been
built for Yamal LNG. Moving forward, Novatek plans to take an FID on another export terminal, Obsk LNG, by mid-2020. is plant will have a smaller capacity of 5mn tpy, largely because it will employ Russian rather than Western lique- faction technology. Novatek’s longer-term goal is to have 70mn tpy of production capacity up and running in the Arctic by 2030.
e company is also aiming to expand fur- ther downstream in the global gas market, to control more of the value chain and ensure sales. It signed preliminary deals at the Vladivostok forum to work with Indian and Japanese gas importers to market LNG and gas to end-cus- tomers in Asia, promoting its use in bunkering, motor transport and power generation.
On a national level, Moscow wants to pro- duce at least 120mn tpy of LNG by 2035, in order to rival other leading suppliers such as Australia, Qatar and US.
Russia was slow to join the global LNG mar- ket. It did not commission its rst export termi- nal, a 10mn tpy facility on Sakhalin Island, until 2009, and this remained its only source of LNG production until Yamal LNG’s start-up. Moscow views the sector’s development as a priority, for Russia to capture more market share globally and reduce its reliance on European gas sales.
is development drive has come at a cost, however. e government has had to provide Yamal LNG and other projects with lucrative tax breaks, including zero export tax and mineral extraction tax (MET). As the share of LNG in Russia’s gas exports expands, this will put pres- sure on the country’s tax revenue base.
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w w w . N E W S B A S E . c o m Week 36 12•September•2019