Yamal LNG Avoids Gazprom's Gas Markets

The Russia-based gas export project Yamal LNG has so far avoided competing with pipeline export monopoly Gazprom for market share in Europe for two equally compelling reasons, the CEO of the biggest shareholder Novatek said at a press conference September 17. "First we thought it was better not to cross over into Gazprom's market. And also first because the Spanish buyer, having no access to pipeline gas, paid us a good price," Leonid Mikhelson said on the sidelines of the Gastech conference and exhibition in Barcelona.

Spain's Naturgy took delivery of its first LNG cargo from Yamal LNG in June. It was the first shipped to Europe under a long-term contract.

Gazprom has the monopoly on Russia's pipeline exports and, as Yamal LNG is sold on a delivery ex-ship basis, it has been possible to enforce this no-compete rule. As the pipeline link between the Iberian peninsula and France is very limited, delivering LNG to Spain or Portugal does not encroach on Gazprom's pipeline market. The two however compete with LNG in Asia, as Gazprom is a major equity holder in Sakhalin Energy, in the Russian far east. Mikhelson expects four fifths of the LNG from its projects to end up in Asia.

Mikhelson also talked about the transshipment plants planned for Kamchatka: he said the first phase would be able to hold 10mn metric tons (mt) and be operational by the time Arctic LNG started up; and the second phase would be the same again. Being in warmer waters, the winterised tankers for the Northern Sea Route would not be used on relatively low-cost work of shipping LNG to Japan (three days' sailing) or China (seven days' sailing), but shuttle between the liquefaction plant and Kamchatka.

He told NGW that these tanks would be used for trans-shipment not storage; however, because trans-shipment only takes a matter of hours to carry out, as Yamal LNG already does in northern France in order to keep the Arc-7 tankers in the Arctic waters, there is not much need for so much capacity.

Two of the three trains of Yamal LNG, in the Russia far north, are operating and the third will become operational this year, he said. And some time next year the company will decide whether or not to build Arctic LNG, whose structure has not been fixed but which will also be majority owned by Novatek on 60% and also have the French major Total as a partner with 10%. The other shareholders will be on board before the final investment decision.

That plant will be a lot cheaper to build, as the new design will be a gravity-based system, and not require piling. Each train will be larger too, at 6.6mn mt/yr compared with Yamal LNG's 5.5mn mt/yr, although the current Yamal trains are operating at 5% or 7% above that. Combined, the Yamal and Arctic plants will be able to produce about 38mn mt/year.

It will however be a few hundred metres offshore. And the proportion of Russian-made parts will rise at the expense of imports, he said, although the first train is likely to be mostly foreign made as the "plant that builds plants" that Novatek is planning to build at Murmansk is not going to be ready in time. But generally "each train will be more Russian," he said, and Novatek has had meetings with specialist engineering firms in the Russian cities of Chelyabinsk and Nizhny Novgorod, centres of metallurgy and engineering respectively.

Chinese companies will also be involved in building the modules for Arctic LNG, he said, and this had given rise to the idea of selling LNG to China in exchange for yuan, not dollars. "Given that there is also ordering work to be done for modules and shipping, the Russian central bank is talking about this," he said. 

He also said that company was less concerned about pre-selling the LNG before taking the final investment decision some time next year, as the LNG market was growing faster than expected and new countries, such as Sri Lanka and Cambodia, were considering LNG, he said. "Major consulting firms a few years ago were talking about a 500mn mt/yr LNG market by 2030; now that total is expected by 2025. Competition between projects is secondary," he said. "The primary competition is between gas and coal."