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    Arctic LNG 2 to Start Work in July: CFO


Novatek's second LNG terminal, in Russia's far north, is as good as agreed, according to finance chief Mark Gyetvay

by: William Powell

Posted in:

Jordan, Kazakhstan

Arctic LNG 2 to Start Work in July: CFO

The operator of Russia's second northern LNG plant, to be called Arctic LNG-2, will start pouring the concrete for its first gravity-based liquefaction module in July, CFO of Novatek Mark Gyetvay told delegates at IP Week in London February 27.

He told NGW that while the company had not formally taken a final investment decision, it had done so "in its own mind." He added that the plan had been to take FID in the first half of the second half of the year. He did not say who would partner Novatek on the project.

Among the names mentioned as possible partners has been Saudi Aramco, whose CEO Amin Nasser told the same event that his company plans to become one of the world's top three gas companies. He did not explain how this would be achieved, but overseas operations would be a part of that plan.

One partner on Arctic LNG-2 will be French Total, which plans to take at least a 10% stake in each successive terminal project led by the Russian company. It is a shareholder in Novatek and also directly a shareholder in Yamal LNG.

Novatek, retaining 60% of the equity, will emerge as a portfolio player of growing importance as more liquefaction capacity comes on stream, Gyetvay said. If Novatek builds capacity to 70mn mt/yr by 2030 as planned, that would leave it with 42mn mt/yr to trade, depending on pre-sold volumes. The trillions of cubic metres of gas reserves discovered in the past few years could supply the plants for decades. 

The 16.5mn mt/yr Yamal LNG plant came on stream earlier than expected: the first train was working at the turn of last year, and the third train in November, a year ahead of the original schedule, he said. The cold ambient temperature has improved output compared with nameplate. A fourth train of 0.9mn mt/yr is due to launch in December 2019. As of February 4, the plant had shipped 10mn mt in about 13 months.

Arctic LNG-2 will have a smaller footprint than Yamal LNG and use a gravity-based system rather than driving piles into the bedrock. It will have three trains with combined capacity of  19.8mn mt/yr.

The construction method will make it much cheaper. The company has had to focus on costs because Qatar is planning a major expansion and also has very low feedstock costs.

Gyetvay said the feedstock gas from the giant reserves in the Gydan Peninsula would cost $0.10/mn Btu, while liquefaction costs were lower than offtakers could obtain from US plants. This means LNG deliveries to Europe or Asia would be cheaper all in, than LNG free on board, Gulf of Mexico.

That is despite environmental restrictions being much tighter at Yamal, where almost no associated petroleum gas is flared. In the US flaring requests are routinely approved by the state regulator in the Permian basin, Texas, but 95% of it must be captured in Yamal, Gyetvay said. Shale gas production had been a technical success but an economic failure for many US producers, he added, and nobody knows how long it would last.

The concentration on costs will be good for the gas industry, Gyetvay said, as gas needs to grab market share from coal. He advocated long term pain on price in order to stimulate gas demand . That is the real competition to focus on, he said: gas versus coal.