• 19 hours U.S. On Track To Unseat Saudi Arabia As No.2 Oil Producer In the World
  • 21 hours Senior Interior Dept. Official Says Florida Still On Trump’s Draft Drilling Plan
  • 23 hours Schlumberger Optimistic In 2018 For Oilfield Services Businesses
  • 1 day Only 1/3 Of Oil Patch Jobs To Return To Canada After Downturn Ends
  • 1 day Statoil, YPF Finalize Joint Vaca Muerta Development Deal
  • 1 day TransCanada Boasts Long-Term Commitments For Keystone XL
  • 1 day Nigeria Files Suit Against JP Morgan Over Oil Field Sale
  • 2 days Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 2 days Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 2 days Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 2 days Venezuelan Output Drops To 28-Year Low In 2017
  • 2 days OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 2 days Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 2 days Kinder Morgan Delays Trans Mountain Launch Again
  • 2 days Shell Inks Another Solar Deal
  • 3 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 3 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 3 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 3 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 3 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 3 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 3 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 3 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 4 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 4 days Norway Grants Record 75 New Offshore Exploration Leases
  • 4 days China’s Growing Appetite For Renewables
  • 4 days Chevron To Resume Drilling In Kurdistan
  • 4 days India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 4 days India’s Reliance Boosts Export Refinery Capacity By 30%
  • 4 days Nigeria Among Worst Performers In Electricity Supply
  • 5 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 5 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 5 days Saudis To Award Nuclear Power Contracts In December
  • 5 days Shell Approves Its First North Sea Oil Project In Six Years
  • 5 days China Unlikely To Maintain Record Oil Product Exports
  • 5 days Australia Solar Power Additions Hit Record In 2017
  • 5 days Morocco Prepares $4.6B Gas Project Tender
  • 5 days Iranian Oil Tanker Sinks After Second Explosion
  • 8 days Russia To Discuss Possible Exit From OPEC Deal
  • 8 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
Alt Text

European Gas Struggles Leave Bulgaria In A Tight Spot

Europe’s drive to diversify natural…

Alt Text

The Most Remarkable Natural Gas Deal Of 2018

The potential first delivery of…

Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest.

More Info

Russia’s Comeback In The LNG Race

Russia

In a little more than a month’s time, Russia will formalize its claim for a bigger role in the ever-expanding global LNG market. Early October, when the Yamal LNG will see its commissioning and first cargo delivered, expect to hear “Russia” and “LNG” in the same sentence in increasing frequency. Yet in Yamal LNG, Russia’s bid to consolidate its claim as a gas stronghold and to garner at least 10% of the global LNG market, one can discern a quite unconventional project for Russia. Although led by NOVATEK, a non-state-owned company (albeit with multiple connections to the political establishment) and not the usual “suspect” Gazprom, it stands a good chance to propel Russia into the LNG vanguard. This being said, behind the viability of Yamal LNG stand several factors absent which the project would be commercially feasible only with gas prices strictly above $11-12/MMbtu – most importantly, large-scale government help.

Liquefied natural gas (LNG) has been a matter of disquiet for the Russian energy sector for quite some time. Since the 1970s, various variants have crept up, virtually all based on the idea of selling LNG to Asia Pacific and North America. The first such assumptions were put forward in the 1970s but were cut short by the Reagan Administration shortly thereafter, the 1990s brought renewed interest in LNG, yet only the Sakhalin LNG hub got past the plan-making stage. Up to now, Russia’s entire LNG potential was condensed in the Far East island of Sakhalin, where an annual production of 9.6 Mtpa (14 BCm) have allowed Moscow to secure 4.5 percent of the global LNG market. A lack of market outlets has bogged down the Shtokman LNG project, which was destined to supply North America when the shale upsurge took place, a similar fate met Vladivostok LNG.

The Yamal peninsula is a more than adequate spot to locate Russia’s new LNG venture. With total 3P reserves of 26.5 TCm, it is the most gas-rich first-phase region on the planet. Yamal LNG’s main feed will come from the South Tambeyskoye gas field that contains 1.3 TCm. The project will see the gradual commissioning of 3 LNG trains, all 5.5 Mtpa/year, the first to be brought online this October, the last most likely late 2018-early 2019. Although the construction of the $27 billion Yamal LNG project was almost entirely carried out within the sanctions regime, its ambitious timeline will most likely be fulfilled even quicker than expected. From the first LNG terminal inside the Arctic Circle, Sabetta, which was specifically built for the Yamal LNG project, the state-owned SovComFlot will operate a fleet of 15 ice-class LNG tankers. It is assumed that most of Yamal LNG will go to Asia – for this to happen, the tankers will take the Northern Sea Route in the navigable period (July to November) or transship at the Belgian Zeebrugge terminal at all other times. Related: Venezuela’s “Oil Fire Sale” To Benefit Russia, China

A short navigation period in the Arctic Ocean is just one of the manifold challenges NOVATEK had to face when pushing forward the Yamal LNG project. Port Sabetta was built completely from scratch, mostly from government funds as it is deemed a project of federal importance – it is expected to grow into a massive LNG hub, becoming a home for both Yamal LNG and Arctic LNG-2. The construction work also included the dredging of the Ob Bay for it to be more easily navigable. Yet the government did not stop there – it has also built a first-category airport, a power plant to cater the needs of Yamal LNG, and various sorts of necessary urban infrastructure in Sabetta. The institutional conditions for LNG to develop in Russia are nothing short of providential. The government abolished the export duty on LNG deals, exempted producers from paying the mineral extraction tax for the first 12 years after coming online, as well as from paying VAT on imported LNG-related equipment.

The massive government backing might make it seem as if Yamal LNG was built in an impracticable location, however, the polar conditions at the Yamal Peninsula have upsides, too. For instance, the liquefaction of gas to the desired temperature of -170 °C is much more profitable when the outside temperature is -50 °C than in subtropical conditions. Moreover, on the back of global warming processes, the navigation period along the Northern Sea Route might gradually become longer and longer. The thawing of ice ridges in the Kara Sea and massive zones of thick ice in the mostly shallow Laptev Sea might render the crews’ life less difficult (although polar winds are expected to intensify). Thus, if today it takes around 15 days to reach the Asia Pacific region from Sabetta during the navigation period, it is not implausible to see a decline to 12-13 in the foreseeable future. What is more, apart from increasing Russia’s LNG footprint, Yamal LNG puts out a geopolitical statement, too – that Moscow takes its Arctic commitments seriously and is there to stay from now onwards.

Related: Oil Prices Rise As Texas Braces For Hurricane Harvey Landfall

Whilst enumerating the ways the Russian government helped Yamal LNG, one might lose track of NOVATEK, the project’s main shareholder operator. First, it managed to attain an optimal shareholder structure on the project, namely 50.1 percent went to itself, 20 percent - to CNPC and Total, 9.9 percent - to the Silk Road Fund. Second, the long-term LNG supply contracts NOVATEK managed to secure allow its partners to be flexible with delivering the allotted volumes. Apart from marketing LNG through its own NOVATEK Gas & Power outlet, Yamal LNG will also flow to world markets through Total (4 MMtpa), CNPC and Gazprom (3 MMtpa) and Gas Natural Fenosa (2.5 MMtpa). Since the contracts include a flexible destination clause, the LNG, mostly believed to be destined for Asia, can be essentially traded to any destination. Thirdly, the way NOVATEK managed to keep Yamal LNG’s construction delivered on time is a rare phenomenon in a country where almost all energy projects suffer delays or postponements.

Yet NOVATEK will not stop after Yamal LNG had been commissioned, the company intends to become the world’s largest LNG exporter in 10 years’ time. This May, the company has already concluded an agreement with Linde and Technip on designing NOVATEK’s next top project, Arctic LNG-2 (the platforms will be built by Saipem). Arctic LNG-2, located nearby Yamal LNG, right across the Ob Bay on the Gydan Peninsula, will be fed from NOVATEK’s Salmanovskoye and Geofizicheskoye fields (total estimated and potential reserves of 1.2 TCm). Moreover, just to prove that NOVATEK is genuinely intent on establishing the Gydan Peninsula as one of Russia’s leading gas hubs, it secured late August three new licences – the Verkhnetiuteyskoye, Zapadno-Seyakhinskoye and Shtormovoye fields – which combined boast estimated and potential reserves of 1.37 TCm. If institutional conditions remain unchanged, both Yamal LNG and Arctic LNG-2 will be profitable above the $6-7/MMbtu level. Now that Gazprom is making headway with Baltic LNG, Russia’s LNG prospects are a far cry from being as dim as ten years ago.

By Viktor Katona for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • John Marcou on September 03 2017 said:
    Dear Mr Katona, thank you for an interesting and well-written piece. I am curious about transhipment at the Belgian Zeebrugge terminal. It sounds like the LNG cargo is being transferred to another ship, not offloaded for sale. Is that necessary in order to maintain availability of the 15 ice-class LNG tankers at Yamal? Best regards, John
  • Viktor Katona on September 11 2017 said:
    @John Marcou
    Dear John, sorry for taking so long to reply, the answer is that you are absolutely right. During the navigable period, the ARC7 tankers will deliver the LNG to Asian markets via the Northern Sea Route, whilst in the winter they will take the goods to Belgium, where they will be transshipped to conventional LNG tankers, that will take them to the same Asian markets via the Suez canal. So yes, the availability of LNG tankers is paramount in winter months when the Northern Sea Route is not usable.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News