February 6, 2023

WWW.ENERGYINTEL.COM

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 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).

Created with Highcharts 9.0.0(tons)RUSSIAN LNG EXPORTS TO INDIAHaziraDahejDabholMundra2018201920202021202220230100,000200,000300,000400,000500,000600,000700,000Source: Kpler

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.

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

Russia May Take Part-Payment in Rupees, Dirhams

Russia is ready to accept part-payment for crude oil and LNG that it supplies to India in rupees, but it is also seeking partial settlement in United Arab Emirates (UAE) dirhams, officials from both countries said on Monday.

Talks about using non-dollar currencies in bilateral trade come as Moscow looks to increase its exports of Urals crude to India and other Asian countries, as well as stepping up its exports of LNG from Arctic projects.

Russia has long sought to reduce its exposure to the dollar in international trade and has become more determined to do so after the West imposed additional sanctions on Moscow after the latter's invasion of Ukraine a year ago.

India, meanwhile, has ramped up its crude oil imports from Russia from negligible levels before the war to around 1.4 million barrels per day in January to take advantage of deep price discounts offered by Russian producers.

Leonid Mikhelson, CEO of Russia's Novatek, told the India Energy Week in Bengaluru on Monday that the company is talking to India's state-run gas distributor Gail and other Indian companies about long-term LNG supply deals.

He added that he was open to receiving payments in rupees, dirhams or other non-dollar national currencies.

But he said there must be a "balance" and emphasized that Novatek would only agree to part-payment in rupees.

Igor Sechin, the head of oil giant Rosneft, told reporters at India Energy Week that Russia is willing to increase its oil supplies to India.

He declined to comment on the big price discounts that Russian oil producers have been offering Indian buyers since European buyers started to drift away from Russian oil following Moscow's invasion of Ukraine a year ago.

Indian government officials attending the conference in Bengaluru said that Rosneft is in talks with Indian refiners about part-payment in rupees, but that the Russian company also wants a portion of its exports to be settled in dirhams.

Dubai's Growing Role

An Indian trade official said many Russian oil trading firms and other businesses have been operating out of Dubai and sourcing goods from the Middle East following the imposition of western sanctions over the war in Ukraine.

Mikhelson said Novatek hopes to source engineering goods and components from India and invest in projects in India, including the possible construction of LNG regasification terminals and the establishment of LNG retail outlets.

He said that this would enable Novatek to use any rupees that it receives for deliveries of LNG to India, but added that the company would need to consult with Russia's central bank and other institutions before accepting payment in rupees.

An official from one of India's state-controlled refiners said Russian companies are wary of building up surpluses of rupees that they may not be able to fully utilize.

A modest amount of bilateral trade has been conducted with Russia in rupees since December after India's central bank allowed some of the country's commercial banks to create "Vostro" accounts for that purpose.

However, the country's biggest banks are generally wary of getting involved in this because of concerns about US sanctions.

Russia and countries in the Middle East tend to dominate bilateral trade with India, making them hesitant to accept rupees.

Separately, an Indian government official said the country is in the late stages of concluding arrangements with the UAE and Saudi Arabia to use national currencies for bilateral trade.

However, the official noted that the two Mideast countries had demanded that payments for oil and LNG should be excluded.

A senior official from one of India's state refiners said some recent oil deals were done in Mideast currency, but that this had resulted in additional foreign exchange costs.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
S Dinakar, Bangalore

Golar Acquires Hilli FLNG Stake From New Fortress Energy

Shipowner Golar LNG has agreed to purchase the ownership stake of US gas and LNG infrastructure company New Fortress Energy (NFE) in the floating LNG plant Hilli Episeyo, in exchange for Golar’s 4.1 million shares in NFE and $100 million in cash, the two companies announced on Feb. 6.

Golar will also inherit around $323 million of debt obligations linked to the FLNG unit and will not have any remaining shares in NFE following the transaction, which is expected to conclude by the end of March.

Golar will purchase the NFE’s entire interest in the 2.4 million ton per year Hilli, consisting of a 50% stake in Trains 1 and 2, which the US firm acquired in 2021 as part of its takeover of Hygo Energy and Golar LNG Partners, the former sister company of Golar LNG.

“Today’s announced transaction increases Golar’s portion of cash flow generation from Hilli’s existing contract ending in July 2026”, said Karl Fredrik Staubo, CEO of Golar, adding that favorable market conditions for liquefaction capacity and Hilli’s market leading operational track record underlines “increased utilization and earnings potential of Hilli upon re-contracting”.

For his part, Wes Edens, chairman and CEO of NFE, highlighted that the deal allows the company to focus solely on its own FLNG portfolio that it owns 100 percent of “as well as buy back NFE stock at an attractive valuation."

Independent advisory firm Evercore said the transaction will likely benefit both companies in the near and longer-term. "The sale helps Golar by immediately increasing its direct revenue from the Hilli and cleaning up the Hilli ownership structure. The sale also helps free up resources for NFE to pursue its own competitive FLNG solutions and eliminates a GLNG share ownership overhang," the firm said in a note on Monday.

What’s Next?

The Hilli Episeyo FLNG has been under charter since 2018 to upstream player Perenco, for Cameroon’s Kribi export project.

Last year, the project exported a record 1.34 million tons of LNG, according to Kpler, the bulk of it lifted by the plant’s sole contractual offtaker Sefe Marketing & Trading — previously Gazprom Marketing & Trading — under a 1.2 million ton/yr f.o.b. agreement.

However, Golar already stated that the Hilli will not remain in Cameroon beyond its current contract. It is not yet clear where Golar will take the FLNG unit following the termination of its contract in July 2026, but the increasing number of planned FLNG export projects across Africa puts the company in a comfortable position to find a new customer for Hilli, with better commercial terms.

The company’s other FLNG unit, Gimi, is set to begin operation at the Greater Tortue Ahmeyim export project offshore Senegal and Mauritania toward the end of this year.
Daniel Stemler, Madrid


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India14.7715.1514.8515.1414.5014.3515.5314.0915.4614.8714.2314.0014.30
Sodegaura, Japan15.6116.7616.7816.8315.5912.7316.4614.7116.3517.1214.9714.2415.72
Zeebrugge, Belgium16.6515.2814.9815.3416.2316.5215.9114.9415.7914.9716.3415.5716.42
Huelva, Spain16.0714.7514.4514.8015.6415.4815.3514.3415.2414.4415.7014.8815.71
Isle of Grain, UK17.1815.7915.4915.8516.7717.0416.5215.4616.3215.4816.8616.0916.94
Everett, US1.410.140.430.191.161.050.010.790.62-0.151.58----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback5. Sep19. Sep3. Oct17. Oct31. Oct14. Nov28. Nov12. Dec26. Dec9. Jan23. Jan6. Feb10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia18.5017.830.16-0.67
SW Europe16.5016.72-0.600.22
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.052.462.412.68
NBP, UK (futures)-0.1117.7217.8316.86
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.3118.4818.7917.73
Zeebrugge (Belgium)--------
German NCG-0.1816.2116.3915.68
NBP (UK)-0.6017.9618.5717.21
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.212.192.402.81
Corpus Christi, Texas----0.002.58
Cove Point, Maryland-1.062.043.103.15
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.052.462.412.68
Second Mth0.062.542.482.73
Third Mth0.052.672.632.82
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaMar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '230255075100125Energy Intelligence