Russia Is Heating Up The Arctic

After a year of securing deals, finalising details and even projecting way beyond the current, Novatek’s Arctic LNG 2 was been given its Final Investment Decision (FID), paving its way for a 2023 start. Led by Russia’s largest independent gas producer, the 19.8 million ton per annum project is also joined by Total, CNPC, CNOOC and the Japan Arctic LNG consortium (consisting of Mitsui & Co and JOGMEC).

The make-up of the project stakeholders is telling. There is Novatek, which aims to catch up with Gazprom as Russia’s largest gas player. Then there is Total, whose savvy deals have propelled it to become the second largest private gas player (behind Shell) through a diversified portfolio. Japan – currently the world’s largest LNG importer – is well represented, while the fast-growing demand market of China is in there as well. Each of the minority players owns a 10% stake but Total also has a 19.4% stake in Novatek, bringing its total economic interest to 21.6%.

The geography of the project is interesting as well. Centred on the Trekhbugornly and Gydanskiy fields, the terminal at Utrenniy and a large-scale liquefaction plant in the remote Gydan Peninsula, passage from this part of Russia’s Arctic is difficult. Which is why Novatek is also partnering with Sovcomflot to build a fleet of 17 icebreaker-class LNG carriers to ferry the super-chilled liquid through the Arctic to Northeast Asia. That’s the Northern Sea Route, the closest direct route to Asia available and it might even get easier. Climate patterns have shifted the Arctic’s ice floes, with new shipping channels opening up from thawing ice in the summer. The journey rivals delivery times from Qatar to Tokyo, or Australia to Shanghai – which explains the high interest from Japanese and Chinese parties. For Total, which has a global presence, Arctic LNG 2 will also be able to deliver cargoes to Europe via transhipment terminals in the Murmansk region.

It also explains why Novatek is already thinking beyond this. Arctic LNG 2 will consist of 3 phases. Train 1 is scheduled for 2023, while Train 2 and Train 3 planned for 2024 and 2026. But Novatek has already made overtures to expand its assets in the Gydan – part of West Siberia’s Yamal-Nenets region. Novatek’s ambitions call for up to 140 mtpa of LNG production in Gydan and Yamal, from its current 16.5 mtpa Yamal LNG and the 19.8 mtpa Arctic LNG 2, though Gazprom has pushed back on Novatek’s lobbying of the Russian government on the issue. However, plans have already been made for at least one more LNG project – oddly titled Arctic LNG 1 – that would focus on the Soletsko-Khanaveyskoye field in the Kara Sea, which has an estimated 2.18 bcm of gas in place.

The net result of this is that Russia will become a more diversified gas player. Besides the Sakhalin II and Yamal LNG projects, Russia primarily sells its gas by pipeline to Europe. But with resistance there increasing – see the furore over the Nord Stream 2 pipeline – Russia needs more options. Geography and weather have always presented challenges to export Siberian gas to Asia and the rest of the world, but Arctic LNG 2 offers a very promising glimpse of a possibly profitable future.

Arctic LNG 2:

• Stakeholders: Novatek (60%), Total (10%), CNPC (10%), CNOOC (10%), Japan Arctic LNG (10%)
• Capacity: 19.8 million tons per annum through 3 Trains
• Location: Gydan Peninsula, West Siberia

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