“Arctic LNG-2”: history and significance of the project

In November 2023, NOVATEK’s Arctic LNG-2 liquefied natural gas plant under construction came under American sanctions. What this project is is in the Kommersant information.

What is Arctic LNG-2

“Arctic LNG-2” is NOVATEK’s project for construction of LNG production lines with a capacity of 19.8 million tons. The capacity of each of the three lines will be 6.6 million tons per year, the volume of stable gas condensate will be up to 1.6 million per year. The company plans to open all lines from 2023 to 2026.

In 2018, the main technical solutions and design documentation were completed, engineering preparation of the territory, construction of priority energy supply facilities and drilling of production wells, and construction of a quay began. At the end of 2022, the project readiness was estimated at 73%, the readiness of the first line at 95%. In August 2023, the first production train with a capacity of 6.6 million tons of LNG per year was installed on a prepared offshore foundation in the coastal zone.

What kind of deposit is it and what reserves does it have?

The resource base of the Arctic LNG-2 project is Utrenneye field, opened in 1979 and located on the Gydan Peninsula in the Yamalo-Nenets Autonomous Okrug, approximately 70 km from the Yamal LNG project on the eastern shore of the Ob Bay. A license for exploration and production of hydrocarbons was issued to Arctic LNG-2 LLC for a period until 2120. Proven and probable reserves of the Utrenneye field amount to 590 billion cubic meters. m of natural gas, or 23 million tons of liquid hydrocarbons.

Investments in the project

In 2016, NOVATEK for the first time disclosed the amount of possible investments in the construction of Arctic LNG 2 – at least $10 billion. Subsequently, the amount increased several times. After approval of the construction estimate in October 2019, the cost estimate was announced in the region of $21.3 billion. In June 2023, the preliminary estimate of the cost of construction of Arctic LNG-2 increased by 17%, to approximately $25 billion. The increase in costs will be covered by funds from the project shareholders. NOVATEK’s first LNG project, Yamal LNG, cost $27 billion.

The launch of the plant, in addition to billions of dollars in tax deductions and the creation of thousands of new jobs, should give impetus to the development of the northwestern territories of Russia and the Northern Sea Route.

Who owns it

NOVATEK owns 60% at Arctic LNG-2. The remaining shareholders – the French TotalEnergies, the Chinese CNPC and CNOOC, as well as the consortium of the Japanese Mitsui and JOGMEC – 10% each. According to the terms of entry into the project, each of the foreign shareholders signed a long-term contract to receive LNG in proportion to its share, that is, 2 million tons per year. The sanctions will likely prevent the fulfillment of contracts, as payments for cargo will not be possible. On the other hand, termination of long-term contracts can lead to multi-billion dollar litigation.

What sanctions have been introduced?

In November 2023, the US Treasury added Arctic LNG-2 LLC, which is responsible for the implementation of NOVATEK’s second LNG project Arctic LNG-2, to the sanctions list. The shipment of LNG from Arctic LNG-2 has already been hampered by the latest package of US sanctions: in September 2023, Arctic Transshipment LLC, which manages two storage vessels, was included in the SDN-list.

The sanctions mean that all transactions with Arctic LNG 2 are prohibited, but a special license from the US Office of Foreign Assets Control, until January 31, 2024, allows certain transactions necessary to “dispose of, transfer or facilitate the alienation or transfer of debt or assets” of the company .