Page 35 - bne magazine February 2024_20240206

bne February 2024 Cover story I 35
The Office of Foreign Assets Control (OFAC) imposed sanctions on technology and equipment sales
to Novatek, which has stymied the development of its Arctic LNG-2 project that was supposed to come online this month. However, it now appears that Kyiv is on the verge of taking matters into its own hands and could try to destroy Novatek’s facilities entirely.
For now, Novatek’s main LNG facilities remain out of range of Ukraine’s drones, but the company’s petroleum products production is now in range.
Novatek has reportedly temporarily shut down its Ust-Luga facility while it affects repairs. The plant is a major producer
of naphtha, jet fuel, fuel oil, gas oil, and liquefied petroleum gas (LPG). If the plant is destroyed the global market for all these products would be affected. Energy analyst David Edick, said that shutting down Russia’s oil and gas exports would be only slightly less disruptive for the global energy market than closing the Straits of Hormuz, as described in bne IntelliNews round up of global chokepoints.
In 2022, the sale of petrochemical products from the Ust-Luga complex amounted to a 39% share of overall liquids sales volumes for Novatek, according to the company’s reports.
It is still not clear as to how much damage the drone strike caused or whether the plant will be shutting down the whole operation for an extended period.
The Ust-Luga complex is located on the Baltic Sea near St Petersburg and 860km away from the Purovsky Plant, its main source of feedstock of stable gas condensate. The giant gas fields in the Yamal peninsula and the Arctic LNG-2 plants are in the same region as the Purovsky Plant, although they do not have a direct connection with the Ust-Luga complex.
The Purovsky Plant delivers Ust-Luga stable gas by rail which is then fractionated producing end products such as naphtha and jet fuel.
The Ust-Luga Complex is Novatek's
only plant that exports these petroleum products to the rest of the world. With this drone attack, Novatek's entire petroleum products export business is in danger of being permanently shut down.
In 2022, Novatek processed 13.2mn tonnes of unstable gas condensate at the Purovsky Plant, out of which it extracted 3.3mn tonnes of LPG that was sold to the local market. The plant also produced 9.9mn tonnes of stable condensate,
of which 3mn tonnes was sold as the
final product and the remaining 6.9mn tonnes was sent to the Ust-Luga complex to be turned into petroleum products that are exported, according to Novatek's 2022 Annual Report.
That 6.9mn tonnes of stable condensate then produced:
• 2,286mn tonnes of Heavy naphtha; • 1,922mn tonnes of Light naphtha; • 1,052mn tonnes of jet fuel;
• 826mn tonnes of fuel oil;
• 661mn tonnes of gasoil; and • 78mn tonnes of LPG.
The drone attack will have no impact
on Novatek’s LNG production at Yamal LNG and Arctic LNG 2 plant, which are another 900km away and so out of range of drones for now.
However, deliveries of the 6.9mn tonnes of stable gas condensate to the Purovsky plant may be halted for the meantime due to the shutdown of the Ust-Luga complex, which could slow exports of its petroleum products.
Alternatively, Novatek could simply export the 6.9mn tonnes of stable condensate unprocessed, but experts say that would flood the market with this product, tripling the amount of what used to be exported.
Drone operator is working in fields. Photo: www.shutterstock.com
www.bne.eu