NOVATEK plans to launch a large LNG plant in the Murmansk region

According to Kommersant, NOVATEK wants to build an LNG plant with a capacity of 20.4 million tons in the Murmansk region, the launch of the first two lines of which is scheduled for 2027. The company plans to receive raw materials for the project from the Unified Gas Supply System, discussing with Gazprom the construction of the Volkhov-Murmansk gas pipeline. The project involves the use of electric drives and cheap electricity from the Kola NPP, which eliminates the need to purchase sanctioned gas turbines. The main issues remain the price of gas purchases from Gazprom and the terms of LNG export.

NOVATEK is exploring the possibility of building a new large-capacity LNG project in the Murmansk region, consisting of three liquefaction lines with a capacity of 6.8 million tons each, Kommersant’s sources familiar with the parameters of the project said. The first two lines of Murmansk LNG can be launched at the end of 2027, the third – at the end of 2029. Kommersant’s sources do not name the volume of investments. The project has already been discussed at a meeting with Deputy Prime Minister Alexander Novak. Gas for the plant NOVATEK plans to receive from the Unified Gas Supply System (UGSS), for which it is necessary to build the Volkhov-Murmansk-Belokamenka gas pipeline with a length of 1.3 thousand km.

NOVATEK told Kommersant that the company has begun implementing the Murmansk LNG project “taking into account a number of necessary advantages to ensure the achievement of LNG production targets set by the President and the Government of the Russian Federation.”

“The necessary design surveys and assessments are underway. The main technical conditions for power supply are being worked out. Also, for the construction of the necessary main gas pipeline with a design capacity of up to 30 billion cubic meters. meters of gas per year, we expect PJSC Gazprom to provide technical specifications for connection to the UGSS for resource support of the project,” the company said. Gazprom did not comment.

Murmansk LNG could become NOVATEK’s fourth project. The pilot Yamal LNG with a capacity of 17.4 million tons per year is already in operation, the Arctic LNG-2 with a capacity of 20 million tons is under construction with the launch of the first line at the end of 2023. The company also plans to make a decision this year on Ob LNG using Russian equipment with a capacity of 7 million tons per year with an expected launch in 2026-2027.

This year Gazprom started designing the Murmansk-Volkhov gas pipeline and estimated its preliminary cost at 350 billion rubles. This gas pipeline has been discussed for a long time, but the project is stalling due to the high cost and low demand for gas in the region.

NOVATEK, according to Kommersant’s interlocutors, plans to start construction of the first Murmansk LNG line at the site of the Center for the Construction of Large-tonnage Offshore Facilities in the village of Belokamenka as early as mid-2024. Gravity bases for the platforms are being built there, each of which will then be equipped with a 6.8 million tonne liquefaction line. The exact location of the platforms in the waters of the Kola Bay is still unknown. By locating the plant in the ice-free port of Murmansk, NOVATEK eliminates the need to build Arc7 ice-class tankers, as LNG can be transported on conventional conventional vessels. In addition, it is possible to sell on FOB terms, when the buyer of gas himself will provide a tanker for export.

The main technological problem – the lack of access to powerful gas turbines necessary for the production of LNG due to sanctions – is planned to be solved by using an electric drive instead of a gas turbine.

Electric drives are produced in the Russian Federation. The need for electricity supply will be covered by the Kola NPP (1.76 GW) of Rosatom, which has historically been underutilized. Due to the cheap generation of nuclear power plants and hydroelectric power plants, the one-part price for electricity in the Murmansk region (consists of the cost of electricity and capacity, excluding the network tariff and sales margin) is one of the lowest in the Russian Federation.

The main regulatory problem is whether NOVATEK will be able to independently export LNG from the project without the participation of Gazprom. Now the company does not have such an opportunity, since Russian legislation allows the export of LNG only for projects in which, as of January 1, 2013, the production license indicated the direction of gas for liquefaction (in fact, these are only NOVATEK licenses in Yamal and Gydan). In the Murmansk LNG project, NOVATEK will take gas from the UGSS, and not from its own fields. Perhaps NOVATEK and Gazprom will interact through an agency agreement, as in the Cryogas-Vysotsk project in the Baltic.

Another question is whose gas will be supplied for liquefaction. NOVATEK currently has no free production capacity for 30 billion cubic meters of gas in the UGSS zone, in contrast to Gazprom, whose free capacity, after the loss of most of the European market, significantly exceeds 100 billion cubic meters. If NOVATEK buys Gazprom’s gas for an export project, then the question arises at what price.

LNG exports can be carried out through an agency agreement with Gazprom, such options were discussed earlier for some unrealized LNG projects, independent expert Alexander Sobko notes. “It is possible to find a solution, the main thing is that there is a mutual interest of the parties. In this situation, it seems that Gazprom is also interested in such a project, since there is an excess of gas in the northwestern region after the shutdown of the Nord Stream, and against the background of plans to gasify the Murmansk region, additional expenses of Gazprom for the supply of these gas volumes to the coast will be small,” he says.

The very idea of ​​using gas for liquefaction “from a pipe”, and not from a dedicated field, according to Mr. Sobko, is similar to the concept of American LNG plants.

“There have been no such projects in Russia so far. With reservations, the Baltic LNG under construction can be considered as such, but in this project, integrated with gas processing, the raw materials will still come from a dedicated gas pipeline with “fat” gas from West Siberian fields,” he clarifies.

The capital costs for the project, according to the analyst, will obviously be less than those of the similarly powerful Arctic LNG-2, more comfortable conditions and no production costs. Arctic LNG has a CAPEX of $21 billion. However, Alexander Sobko clarifies, the cost of raw gas will be higher and will probably include the MET, while Arctic LNG projects have a long-term exemption from this tax.

Tatyana Dyatel, Dmitry Kozlov