Novatek Pivots to India

Novatek is in talks over long-term LNG supply deals in India and seeks to invest in Indian regasification terminals and LNG retail chains to spur demand, Leonid Mikhelson, CEO of the privately-owned company said Monday at the India Energy Week conference in Bengaluru (formerly Bangalore).

Novatek also discussed wider participation of Indian engineering firms and equipment producers in its LNG projects and the use of national currencies in LNG trade, Mikhelson said, confirming an already likely Russian pivot to other non-European buyers in the wake of its invasion of Ukraine.

Novatek maintains strategic plans to produce between 60 million and 70 million tons per year of LNG in the Russian Arctic by 2030 despite the EU technology sanctions banning exports of key liquefaction equipment for Russian LNG projects and looks to expand sales in its key target market of Asia, Mikhelson said.

Novatek Finds Indian Buyer

Novatek on Monday signed a non-binding memorandum of understanding (MOU) with India’s Deepak Fertilisers and Petrochemicals Corp. on the supply of LNG and low-carbon ammonia.

The MOU covers potential spot and long-term contract LNG deliveries, including from the Arctic LNG 2 project, now in construction stage, Novatek said in a statement.

The companies also intend to cooperate in long-term supply of low-carbon hydrogen and ammonia from Novatek’s future gas chemical plant in the Arctic, it said. Novatek in 2022 completed preliminary design for the Obsky Gas Chemical Complex, but has put the project on hold since then.

Novatek is in talks with several potential LNG buyers in India, Mikhelson told the briefing.

Russia has landed LNG in India on a limited, sporadic basis in recent years with zero cargoes landed in India in 2023, so far (see graph below).

Europe Still Interested

Europe remains interested in Russian LNG, although often tries to hide it, Mikhelson said.

“I believe there is still very big interest,” he told a briefing on the sidelines of the conference.

Despite a sharp drop in pipeline gas imports from Russia amid the standoff between Moscow and the West over the war in Ukraine, Europe last year increased imports of Russian LNG, which mostly come from Novatek’s Yamal LNG plant in the Arctic.

Europe will need an extra 40 million to 50 million tons of LNG this year to cover the growing gap between supply and demand, which may even grow to up to 70 million tons, depending on China’s demand recovery after the lifting of Covid-19 restrictions, Mikhelson said.

Europe’s need for Russian LNG is reflected in the exemption of gas condensate, produced by Russian LNG projects, from the EU oil price cap introduced on Dec. 5, 2022, Mikhelson said.

Yamal Hits Record Volume But Will Retreat

Last year, Novatek’s only operational project in the Arctic, Yamal LNG, produced a record volume of almost 21 million tons, up from 19.6 million tons in 2021, Mikhelson confirmed.

The production was supported by the re-scheduling of planned maintenance from 2022 to this year and the technical upgrade of the project’s three large trains that now can operate at 20% above their 5.5 million tons/yr nameplate capacity when ambient temperature is below 20 degrees Celsius, Mikhelson said. The medium-sized 900,000 ton/yr Train 4, using Novatek’s own Arctic Cascade technology, has also ramped up and operated above capacity last year.

This year, Yamal’s production will likely decrease 5%, Mikhelson said, as the project will stop one of the large trains for planned maintenance in June, and another large train in August.

Obsky FID in Q2-Q3

Novatek maintains plans to launch the next Arctic LNG-2 project at the end of this year and will strive to take a final investment decision (FID) on the third project, the 6 million tons/yr Obsky LNG, in the end of the second quarter or in the third quarter, Mikhelson said.

The first of three 6.6 million ton/yr trains of Arctic LNG 2 is almost ready and in August will be moved from the Murmansk yard in northwestern Russia where it was built to the plant’s location in the Arctic. The second and third trains will be launched in 2024 and 2026, as planned, he added.

In the end of the second or in the third quarter, Novatek will complete the construction of the Murmansk and Kamchatka transshipment terminals, where Novatek plans to sell Arctic LNG 2 volumes on an f.o.b. basis, Mikhelson said, adding that the terminals should contribute to the stabilization of prices on the LNG market.

Sakhalin-2 Plans Not Clear

Mikhelson declined to say whether Novatek is still considering buying the 27.5% minus one share stake in Gazprom-controlled Sakhalin-2 offshore upstream and LNG project in Russia’s Far East.

The stake is the one that Shell refused to take in the project’s new Russia-registered operator, established by Moscow. The Russian government now holds the stake. It planned to sell it in January, but the deadline was cancelled in late December. Novatek has been considered the key candidate for the stake.

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