Novatek’s new project will do without Gazprom’s gas

“Novatek” plans to use its own resource base for a new project for the production of liquefied natural gas (LNG) with a capacity of 20.4 million tons per year in the Murmansk region – Murmansk LNG and does not intend to purchase gas for liquefaction from Gazprom. This was announced during a briefing by the chairman of the board and co-owner of Novatek, Leonid Mikhelson.

For the Murmansk project, Novatek plans to use its own liquefaction technology, Arctic Mix. The capacity of one line, according to Mikhelson, will be about 7 million tons per year. On June 13, the company announced that it had received a Russian patent for this technology (with a capacity of one line of more than 6 million tons of LNG per year).

Mikhelson noted that the choice of the location of the project is explained by two main factors – the presence of an ice-free port and a surplus of electricity in the region. He explained that for the export of LNG from the Gulf of Ob (between Yamal and the Gydan Peninsula in the Yamalo-Nenets Autonomous Okrug), gas tankers of the Arctic class Arc7 are needed, but there is uncertainty with their number. Shipment of LNG in the Murmansk region in the new project will help to avoid this problem.

According to the businessman,Novatek» also began design work to reduce the cost of the platform (gravity-type bases) for the LNG plant. It will be of a non-ice class, and its transportation will also be cheaper, since the platform will not be transported along the Northern Sea Route. During the year, design work on the platform will be completed, Mikhelson said.

The second advantage of the location of the plant in the Murmansk region is an excess of electricity in the region in the amount of about 1 GW due to the presence of the Kola NPP (the Murmansk energy system has been steadily redundant since the 1990s – Vedomosti). Mikhelson clarified that, for example, to supply one line of the Arctic LNG-2 project, a power plant with a capacity of 500 MW is needed.

He also explained that Novatek’s gas reserves in Yamal and Gydan will be used for liquefaction, and the company does not plan to buy gas from Gazprom. At the same time, there are no specific new areas for the project, gas will come from the developed fields.

“The resource base will be our own gas. <...> There are no problems with the resource base. We produce 80 billion cubic meters. [в год]. <...> Based on the existing resource base, we can maintain a “shelf” (stable production level. – Vedomosti) until 2040, excluding the Gydan deposits. Therefore, we can raise production to the volumes necessary for Murmansk LNG,” Mikhelson said. He added that in 5-7 years the company will connect new fields, but at the same time, the “shelf” for supplies to the domestic market of Russia will remain the same.

The head of Novatek explained that the lack of significant new investments in production will also reduce investments in the project. At the same time, the company will independently build a gas pipeline to the plant with a capacity of 30 billion cubic meters. in year. “We will build the gas pipeline to Murmansk LNG ourselves. The main pre-project work has already been done,” he stated.

All this, according to Mikhelson, should reduce investment in the project and the cost of LNG production. Investments in the Arctic LNG-2 project (another Novatek liquefaction plant), he said, have already exceeded $22 billion.

Mikhelson also noted that in order to implement the Murmansk LNG project, the company is counting on a change in the law on gas exports. Now gas production, liquefaction and sale of LNG is carried out by one legal entity, he explained, that is, the export license is tied to the resource base. Novatek also plans that two legal entities will be involved in the project: one will produce and transport gas, the other will liquefy and export. Mikhelson added that this initiative has not yet been discussed in the government, but a working group has already been created in the State Duma.

In early June, Mikhelson announced that the capacity of the new LNG plant in the Murmansk region was planned at 20.4 million tons per year (three lines with a capacity of 6.8 million tons per year). The launch is scheduled for 2027-2029. He specified that “Rosatom” And “Rosseti» «Welcome the additional loading of available unused capacity». At the same time, to make an investment decision, the construction of the Volkhov-Murmansk gas pipeline is required. Vedomosti sent inquiries toRosatom“,”Rosseti“,”Gazprom“.

In a commentary by the press service of the Ministry of Energy to Vedomosti, it is indicated that there are no legislative prohibitions on the construction of a main gas pipeline for Novatek. The company can also really deliver gas volumes to the Unified Gas Supply System (operator – “Gazprom”) and get them elsewhere. To do this, Novatek needs to pay the cost of transporting gas through pipelines that do not belong to the company.

Analysts interviewed by Vedomosti believe that the cost of Arctic LNG-2 can be a benchmark for estimating the cost of the project. Igor Yushkov, a leading analyst at the National Energy Security Fund, believes that the costs will be “no less than for Arctic LNG-2.” According to Senior AnalystBCS World of Investments” by Ronald Smith, capital costs for liquefaction can range from $750 per 1 ton of annual capacity, that is, more than $15 billion, and the cost of the gas pipeline is another $7 billion. Ivan Timonin, a consultant at Vygon Consulting, estimates the value of capital costs at $30 billion, of which $26 billion will go to the construction of the plant, $4 – to the gas pipeline.

Smith believes that the “more logical” market for the project is Europe. At the same time, it is difficult to guarantee the preservation of LNG supplies from Russia to the European Union (EU) during the expected period of the launch of the plant, says Sergey Kaufman, an analyst at FG Finam. He explains that the EU can completely switch to liquefied gas from the US, Qatar, Canada and other countries. But if Novatek has problems with exports to the EU, the project will be profitable even if it delivers to the Asia-Pacific market through the Suez Canal, analysts say.

According to Timonin, the project will break even if the cost of LNG is about $4.6 per 1 million British thermal units (MBTU, about $164.3 per 1,000 cubic meters), which is comparable to Yamal LNG. Supplies to Asia, according to his calculations, will be profitable if the price in the region is above $7.4/MBTU ($264.3 per 1,000 cubic meters). On June 19, the price of July futures for gas at the TTF hub in the Netherlands fluctuated in the range of $343-377 per 1,000 cubic meters. m, according to the ICE exchange. In Asia, gas, based on the Platts index and Vedomosti calculations, on June 16 (latest data) was sold at $400 per 1,000 cubic meters. m.

Yushkov, at the same time, he admits that Novatek will sell LNG from the project “when loaded onto a ship”, which will allow “leaving out the search for tankers and sales markets”. Such a scheme is used by a number of American LNG plants, he clarifies.

Timonin and Yushkov note that the expected launch date of the project corresponds to the possibilities of building platforms at the Novatek shipyard in Belokamenka (Murmansk region). Kaufman, believes that the company “has a good chance to start operating the project in 2027-2029.” Smith considers it more realistic to launch the project in 2029.

Yushkov draws attention to the fact that obtaining a patent for liquefaction technology does not guarantee the absence of problems with the equipment. “Technology may involve the use of foreign equipment. It’s one thing to patent a technology, and another to build an LNG plant,” he says.

Another possible problem, according to Yushkov, could be the resource base and the cost of raw materials. “At Novatek’s fields, which are connected to the Unified Gas Supply System, production is falling, which is why the company has been building up its resource base for LNG projects.” Smith believes that in order to increase exports, Novatek could reduce gas sales on the domestic market by giving part of it to Gazprom.