Novatek, Gazprom Clash Over Arctic LNG Resource Base

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Russia’s LNG expansion drive has intensified the fight for the lucrative resource base in the strategic Arctic region. The country’s LNG export champion Novatek wants to buy the giant Tambei group of fields from state-run Gazprom, which wants to keep it for its own petrochemical and LNG production in northwestern Russia (NC Feb.4'21). As in many other cases, the fate of the Tambei fields, harboring more than 7 trillion cubic meters in gas reserves, will likely be decided in the Kremlin. Novatek, privately owned but very close to the Kremlin, has asked President Vladimir Putin to make Gazprom sell the asset, which could significantly boost the resource base for its Moscow-backed Arctic LNG expansion, Moscow business daily Kommersant reported. Russia’s long-term LNG development program, approved in March, clearly says Tambei gas should feed a potential 20 million metric ton per year LNG plant starting in 2030 (NC Mar.25'21). The plant is one of several in the country’s ambitious plan to produce up to 140 million tons/yr by 2035, up from some 30 million tons in 2020 (table). Novatek and Gazprom are understood to have discussed the Tambei sale at a meeting on Apr. 15. Novatek could reportedly pay in cash and equity, as Gazprom already has 9.99% in the company. Novatek has long set its sights on Gazprom’s vast resources in the Arctic, and the Tambei group of fields in particular, which is located close to Novatek’s South Tambei field now feeding the Yamal LNG plant in Sabetta. Apart from dry gas in the Cenomanian layers, Tambei has big reserves of ethane-rich gas in the lower Jurassic layers. That would allow for the development of petrochemicals and LNG, the two key monetization options for Russia’s vast reserves that Moscow is ready and willing to support amid the accelerating energy transition. Novatek is understood to be pushing for a large petrochemicals project in Sabetta, first mentioned by Deputy Prime Minister Alexander Novak in late 2020, and Tambei looks an obvious resource base. To keep Tambei for itself, Gazprom needs to convince the Kremlin its monetization project is more viable economically. A similar argument, however, did not help Gazprom to make Moscow choose its brownfield Sakhalin-2 LNG plant expansion project in Russia’s Far East over the rival greenfield Russian Far East LNG (RFE LNG) scheme of the Exxon Mobil-led Sakhalin-1 consortium (NC Sep.26'19). An industry source told Energy Intelligence Gazprom has planned to pipe Tambei gas to the 45 billion cubic meter per year Ust-Luga gas processing and LNG plant on the Baltic Sea coast, where it should gradually replace the ethane-rich gas from deeper Achimov and Valanginian formations in the Nadym-Pur-Taz area in West Siberia, where many fields are already mature. Gazprom has been weighing Tambei monetization options together with RusGazDobycha, a company that also allegedly has Kremlin connections. Gazprom and RusGazDobycha are jointly developing the Ust-Luga project, set to produce 13 million tons/yr of LNG starting in 2024. RusGazDobycha CEO Konstantin Makhov confirmed in an interview with Interfax news agency on Apr. 20 that Tambei gas should feed Ust-Luga. The field may start in 2026, he said. “Developing the Tambei gas cluster would be the next logical step in the implementation of Gazprom and RusGazDobycha’s ethane strategy post-2025,” Skolkovo Energy Center gas analyst Sergei Kapitonov said. Significant investments will however be required to develop the gas fields and build some 200 kilometers of pipeline to the existing Bovanenkovo-Ukhta trunk pipeline system, part of the Northern corridor running to Ust-Luga, he said. The corridor already has reserved capacity for rich gas from Nadym-Pur-Taz. Tambei’s cost per unit of production could be well above that of the operating Bovanenkovskoye gas field, but the project could gain some cost reduction if Novatek’s infrastructure in Sabetta is used, Kapitonov said. Novatek’s offer may be appealing to Moscow, as producing LNG from Tambei gas right in the Arctic will better contribute to transportation via the Northern Sea Route, another pet project of the Kremlin. RusGazDobycha doesn’t plan an LNG facility in the Arctic, Makhov said, arguing that transportation costs will be too high. From Ust-Luga, LNG transportation will cost 60¢-80¢ per million Btu, and even lower for some European markets, Makhov said. Novatek estimates its Yamal LNG transportation costs at $2.50/MMBtu for Asian target markets, which it wants to reduce by building transshipment terminals in Kamchatka and Murmansk. Ust-Luga’s feedstock cost will be some $2/MMBtu, as the project will buy gas from Gazprom at the regulated domestic price (NC Sep.3'20). Novatek’s upstream costs at Yamal are lower, some 40¢/MMBtu, thanks to tax allowances granted by the Russian government. Front-end engineering and design work will be completed at Ust-Luga at the end of April, Makhov said, after which construction and pre-marketing of LNG may start. Gazprom and RusGazDobycha will soon choose the liquefaction technology for Ust-Luga, after the two candidates, Air Products and Linde, submit their final offers this month, he said. Vitaly Sokolov, Moscow Next week: Russia's small-scale LNG projects take off. Russian Medium-Sized and Large LNG Projects Project Name/Location Main

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