September 9, 2022

WWW.ENERGYINTEL.COM

Novatek Plans Obsky LNG FID, Puts Obsky GCC on Hold

Novatek plans in the first half of 2023 to take a final investment decision (FID) on the 5 million ton per year Obsky LNG project in the Russian Arctic, CEO Leonid Mikhelson said this week.

In the meantime, the company is putting the nearby Obsky Gas Chemical Complex (Obsky GCC) project on hold due to sanctions, he told a briefing on the sidelines of the Eastern Economic Forum in Vladivostok.

Obsky LNG will be Novatek’s third project in the Arctic after the operational 17.4 million ton/yr Yamal LNG, launched in 2017, and the 19.8 million ton/yr Arctic LNG 2, now under construction and scheduled to start its three trains in late 2023, 2024 and 2026.

Novatek’s ambitious long-term LNG expansion plans are complicated by the withdrawal of key investors, lenders and technology partners from Russia, as well as EU technology sanctions in response to Russia’s Feb. 24 invasion of Ukraine.

Domestic Equipment

But the privately owned company believes it can rely on domestic equipment and technology to keep LNG expansion on track.

Novatek has intensified negotiations with domestic equipment manufacturers and plans to invest 30 billion rubles ($490 million) on research and development for liquefaction equipment, Mikhelson said.

Obsky LNG should be the first such project, fully relying on Novatek’s own Arctic Cascade liquefaction technology and home-made equipment.

The technology now works at Yamal LNG’s 900,000 ton/yr Train 4, and Novatek plans to scale the process up for 2.5 million ton/yr trains of the two-train Obsky LNG.

Ammonia on Pause

Obsky LNG will share the resource base, location and infrastructure with the Obsky GCC project, but Novatek has now put the latter on pause, Mikhelson said.

The company has completed pre-Feed (front-end engineering design) for Obsky GCC but doesn’t plan to take a final investment decision at this stage due to sanctions restrictions, he said.

Obsky GCC was supposed to produce more than 2 million tons/yr of ammonia and about 120,000 tons/yr of hydrogen at its first phase, using carbon capture and storage (CCS).

Novatek last year signed a term sheet on long-term supply of up to 1.2 million tons/yr of ammonia from Obsky GCC to Germany’s Uniper, as well as ammonia supply memorandums with Germany’s RWE Supply & Trading and Japan’s Ministry of Economy, Trade and Industry, which are all now understood to be shelved amid the international sanctions which the EU and Japan have joined.

CCS plans are also put on hold, although Novatek doesn’t abandon them completely, according to Mikhelson.

Arctic LNG 2 on Track

Novatek’s most immediate large project, Arctic LNG 2, is on track, as the company understands how to overcome almost all the challenges faced because of sanctions, Mikhelson said.

There are no problems with financing and key foreign liquefaction equipment for all three trains had arrived before the EU sanctions came into force in May, Mikhelson said.

There are problems with other equipment, however, including gas turbines, but Novatek is weighing how to solve them, he said.

The first 6.6 million ton/yr train will be launched in December 2023, Mikhelson confirmed. It has already completed 25%-30% of commissioning work at the Novatek Murmansk yard in northwestern Russia. When the train is moved to the plant’s location in the Arctic in September next year, it will be almost ready for launch, Mikhelson said.

The second and third trains will start up in 2024 and 2026, he said. The first two trains will cover some 25% of the global incremental LNG production in 2023-25, he said.

Novatek also plans next year to launch the Kamchatka and Murmansk transshipment terminals to optimize Arctic LNG 2 logistics, Mikhelson reiterated.

Tankers Uncertainty

There is a risk, however, that LNG tanker construction for Arctic LNG 2 will be delayed, a source close to the project said, which will force Novatek to use part of the Yamal LNG fleet to export product from the first Arctic LNG 2 train in 2024.

When the first train ramps up in late 2024, Novatek will need six or seven new Arc7 ice-class tankers to have been commissioned.

In total, 21 Arc7 tankers have been ordered for Arctic LNG 2, 15 at Russia’s Zvezda shipyard and six in South Korea.

For Obsky LNG, Novatek will need another five tankers, which have yet to be ordered.
Staff Reports

Indonesia Mulls State-Owned Consortium to Buy Shell’s Stake in Abadi

Indonesia is considering the establishment of a consortium of state-owned entities to take over the 35% interest held by Shell in the Masela Block.

Masela contains an estimated 10.7 trillion cubic feet of gas. It is due to feed the long-delayed 9.5 million ton per year Abadi LNG project.

Consortium Questions

The consortium would include Pertamina and Indonesia’s sovereign wealth fund, Indonesia Investment Authority.

But other state-owned companies could be part of it, local media reported, citing Indonesia’s minister of investments, Bahlil Lahadalia, speaking at a parliamentary hearing.

Pertamina’s CEO Nicke Widyawati confirmed discussions with Abadi’s operator Inpex adding that a due diligence process has started to evaluate commercial feasibility among other things.

Inpex, which operates Abadi, is seen as the preferred buyer.

Sluggish Projects

The statements come after President Joko Widodo made comments in recent weeks, calling for investors to take over Shell’s stake by the end of the year so the project can move forward after years of delay.

Indonesia's Tangguh LNG Train 3 is also facing delays amid a tight world LNG Market.

The country's upstream regulator recently indicated that output targets for hydrocarbons are likely to be missed this year.

Thrown in the Towel

Shell is believed to have thrown in the towel several years ago after the Indonesian government requested the conversion of Abadi’s approved floating LNG project into an onshore LNG plant.

Last month, an Inpex study concluded that Abadi's costs would increase by over $1 billion with the addition of carbon capture and storage technology.
Marc Roussot, Singapore

Slovak SPP Inks LNG Supply Deal With Exxon

Slovak state-run gas supplier SPP has signed an LNG supply contract with US major Exxon Mobil, as it continues to diversify its portfolio away from Russian supplies, the Slovak firm said in a statement on Sep. 8.

The deal marks Exxon Mobil’s first LNG supply contract with a Central European buyer.

Cargoes through this contract could be delivered to various terminals in Europe, after SPP announced in May that it secured regasification capacity at terminals in Italy, Croatia, Belgium and even the UK.

SPP already purchased an LNG cargo from the US, which was delivered to Croatia’s Krk terminal on May 1, however, that is understood to be have been purchased on a spot basis.

"Concluding a contract with such a strategic partner as Exxon Mobil opens up new possibilities for us in the availability of natural gas and LNG. Deliveries of gas and liquefied gas from various markets and terminals in Europe, for which we have secured physical transport capacity to Slovakia, are becoming a permanent and integral part of SPP's business portfolio", said Richard Prokypcak, CEO of SPP.

The statement did not specify the contract details such as volumes, length or start up date.

Cutting Dependence

Although, for the time being, SPP can still count on Russian supplies via Ukraine, with this latest LNG supply contract, the Slovak gas importer can cover more than 65% of its customers' demand from sources other than Russia, the company said.

Additionally, following the completion of the Polish-Slovak interconnector last month, SPP also has access to the Polish gas market and the country’s Swinoujscie terminal to import LNG cargoes.

SPP said it remains optimistic to be able to manage the upcoming winter season, thanks to its continued supply diversification and sufficiently filled underground storage stocks.

Slovak storage sites were at around 81% of capacity on Sep. 7, according to data by Gas Infrastructure Europe.
Daniel Stemler, Madrid

EU Eyes Gas Price Cap, But Divided on Details

EU energy ministers have endorsed the idea of setting an upper limit on prices for natural gas imports, but there is still significant disagreement about what a "price cap" should look like in practice.

Some would like to see the price cap apply only to Russian natural gas, given that one of the main aims of the proposal is to prevent Moscow from reaping the benefits of sky-high prices after it slashed its exports to Europe.

But while Russia now accounts for less than 10% of Europe's total gas supply, some countries are still heavily dependent on Russian gas and are worried about President Vladimir Putin's threat to cut off all supplies if the EU implements a price cap.

Meanwhile, a significant portion of the EU's 27 member states endorsed the idea of trying to cap prices for all natural gas imports, including pipeline gas from countries such as Norway and LNG cargoes.

But others — as well as EU Energy Commissioner Kadri Simson — warned that a plan to limit LNG prices could result in cargoes being redirected to markets with higher prices, which would undermine Europe's energy security.

"At this stage nothing is off the table," Simson said, while warning that if the price cap was extended to LNG imports it "could present a security of supply challenge."

Ultimately, EU ministers simply asked the commission on Friday to explore what a price cap could look like as part of a broad set of "emergency and temporary market interventions," Czech Industry Minister Jozef Sikela told reporters.

"I think the gas price cap is, from the market point of view, the most difficult case," Sikela said after presiding over an emergency meeting of EU energy ministers on Friday to discuss Europe's energy crisis.

One EU source made a comparison with G7 member nations' recent endorsement of a proposed price cap for Russian oil, which left many of the details to be sorted out later.

From Fringe to Mainstream

The gas price cap emerged as the most divisive issue among several proposed measures that would have seemed unlikely if not unthinkable just a few months ago.

"The things that were fringe ideas in the spring are mainstream now," said one diplomat.

EU ministers also backed a proposal to cap the revenue of "infra-marginal" electricity producers — those generating electricity from any source other than high-cost natural gas — and use the revenue to help struggling consumers pay their energy bills.

A similar proposal would require fossil fuel producers to make "solidarity payments" from their own substantial profits, with the cash either going to help consumers or fund a further expansion of renewable power.

Ministers also asked the commission, the EU's executive branch, to look at options to increase the liquidity of energy markets, which have been paralyzed by recent high prices that require market participants to post huge sums as collateral.

One source said that such options could include credit lines for energy providers or regulations that base collateral on average prices rather than current ones.

Simson floated the idea of setting up a new price index for LNG that would be separate from gas prices at the Dutch TTF hub.

Finally, the ministers asked the commission to finalize guidelines to cut power consumption — particularly during peak hours.

Simson said such measures to reduce consumption could be voluntary at first, but added that there should be a provision to make them mandatory, if necessary.

Energy War

Sikela said the various proposals discussed by ministers on Friday were needed because Europe is in an "energy war" with Russia.

"We are in a war. We don't need to play with the words," he said. "Putin is trying by manipulating the gas market to break the social peace in our countries and affect our way of life and also attack our economies."

Following Friday's meeting, the commission is expected to publish a package of emergency proposals on Tuesday — one day ahead of European Commission President Ursula von der Leyen's planned State of the Union address.

Some may require legislative approval but the commission may be able to enact others directly, one EU source explained.

Meanwhile, EU energy ministers will likely hold another extraordinary meeting later this month or in early October ahead of a planned meeting in Prague in mid-October.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >

Noah Brenner, Brussels


In Brief

Commonwealth LNG Stays on Schedule

Commonwealth LNG, developer of an 8.4 million ton per year liquefaction project in Cameron, Louisiana, has received notice of availability of a Final Environmental Impact Statement (FEIS) from the US Federal Energy Regulatory Commission (FERC).

The notice came on the day it was called for in a FERC schedule issued a year ago, according to a Commonwealth spokesperson.

With the notice, there is now a 90-day federal authorization deadline which concludes Dec. 8.

"We anticipate having final FERC authorization around the end of the year, consistent with the timeline we projected to take FID in mid-2023," the spokesperson said.

Earlier this week, Commonwealth signed up Australian Woodside to a 20-year deal for 2.5 million tons of LNG from mid-2026, firming up a heads of agreement signed in January.
Michael Sultan, Washington


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India61.5262.0361.5362.0461.0660.8862.6160.4162.5161.6060.6860.3560.75
Sodegaura, Japan61.9763.6363.6563.7861.8957.7463.1560.5563.0164.2061.0159.9762.12
Zeebrugge, Belgium62.3760.3659.8460.4761.7462.1761.2859.8761.1359.8961.8860.7261.99
Huelva, Spain67.7965.7865.2665.8967.1366.8566.7065.1966.5565.3167.1865.9167.19
Isle of Grain, UK37.6735.9335.5036.0137.1637.5036.8635.5136.6035.5337.2636.2737.35
Everett, US6.164.695.024.755.875.730.015.465.254.356.36----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback4. Apr18. Apr2. May16. May30. May13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug5. Sep10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia65.0065.000.550.00
SW Europe48.4068.50-0.5720.10
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.088.007.928.79
NBP, UK (futures)-3.7543.5347.2847.11
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-5.5656.4161.9856.06
Zeebrugge (Belgium)--45.31--31.87
German NCG-4.0957.5061.5954.87
NBP (UK)-0.5838.5539.1217.26
US Markets
US Spot Prices
Sabine Pass, Louisiana0.028.108.088.91
Corpus Christi, Texas-0.217.407.618.60
Cove Point, Maryland-0.217.107.317.81
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.088.007.928.79
Second Mth0.078.047.978.85
Third Mth0.088.188.109.00
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaOct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '220255075100125Energy Intelligence