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    Novatek covets Gazprom's Yamal asset


Gazprom wants to deliver the gas at the Tambey fields to markets via pipeline, while Novatek wants to export it in liquid form.

by: Joe Murphy

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Novatek covets Gazprom's Yamal asset

Russian gas producer Novatek is making another bid to gain control of the giant Tambey gas project on the Yamal peninsula, currently held by its larger, state-owned rival Gazprom, the Moscow-based Kommersant newspaper reported on April 19, citing sources.

Gazprom was issued licences for the undeveloped Tambey fields – Tambeyskoye, Malyginskoye, Yuzhno-Tambeyskoye and Syadorskoye – in 2008, forgoing an auction. But the company has still not approved their development. Novatek, which operates the nearby Yamal LNG terminal and is developing other liquefaction projects in the Arctic, has previously offered to partner with Gazprom to develop the fields to produce LNG. But Gazprom has spurned these proposals.

At stake are an estimated 7.3 trillion m3 of gas reserves, including 2.5 trillion m3 in C1 and 4.8 trillion m3 in C2 volumes, according to Russia's reserves classification.

Novatek CEO and major shareholder Leonid Mikhelson raised the issue in a meeting with Russian president Vladimir Putin on April 13, according to Kommersant. The business daily claims he managed to convince the Russian leader that it would be more profitable for Tambey's gas to be exported in LNG form. Gazprom's current plan is to pump their gas to markets in Europe and China.

Mikhelson then met with Gazprom CEO Alexei Miller on April 15 to discuss Novatek's purchase of the assets partly in cash and partly in shares. But Gazprom, which already has a 10% stake in Novatek, still has no intention to part with the fields.

One factor that has complicated the Tambey fields' development is the high level of ethane in their gas.

"This presents a problem for pipeline use – albeit not insurmountable – but separating out these liquids and selling them separately is a relatively easy part of the gas liquefaction process," analysts at Moscow-based BCS GM wrote in a research note on April 19. The Tambey fields are also closer to Yamal LNG than Gazprom's nearest producing asset in the region, Bovanenkovo. Still, BCS GM brokerage views a deal between Gazprom and Novatek as unlikely, although "the effort shows that Novatek is still thinking very big."

The ethane could also be used to produce petrochemicals. Russia's largest petrochemicals manufacturer Sibur, which also counts Mikhelson as a key shareholder, has suggested building a new plant in the Arctic.

Novatek has set out to produce up to 70mn metric tons/year of LNG in the Russian Arctic by 2030. The 17mn mt/yr of supply from Yamal LNG will be supplemented with gas from the 19.8mn mt/yr Arctic LNG-2 facility beginning in 2023. Novatek is also considering the 5-6mn mt/yr Obsk LNG in 2024, but is yet to take a final investment decision.

The company's other unsanctioned projects are Arctic LNG-1 and Arctic LNG-3, which will boast capacities of 20mn mt/yr each. While Arctic LNG-1 is underpinned by around 360bn m3 of gas at three fields, Novatek is yet to prove enough gas to support Arctic LNG-3. The reserves at Tambey would more than cover this shortfall.

 In its latest LNG development strategy, Russia estimates that the Tambey fields could support 20mn mt/yr of LNG exports. However, Gazprom wants instead to use the gas to supplement supply to Europe and help fill a 50bn m3/yr second pipeline to China. While Gazprom's 38bn m3/yr Power of Siberia, launched in December 2019, connects fields in east Siberia with the Chinese market, Power of Siberia 2 is expected to take gas from Yamal and elsewhere in west Siberia, giving gas access to another market. The company completed a feasibility study for the project's 1,000-km Mongolian section earlier this month.