Novatek Looks to Build Second Arctic LNG Plant

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Artist's conception, Yamal LNG (file image)

By MarEx 2017-03-29 17:01:01

Russian gas firm Novatek is building a massive LNG plant on the Yamal Peninsula, in Siberia's Arctic north. The plant is expected to come online in late 2017, and it will eventually export 16 million tons of liquified natural gas per year using the world's first icebreaking LNG tankers.

But this ambitious plan is not nearly enough for Novatek. The firm has announced that it intends to build a comparable plant on the Gydan Peninsula, across the Gulf of Ob from Yamal LNG. The second facility – called Arctic LNG-2 – would be completed by 2023, and would export gas from Novatek's Salmanovskoye and Geofizicheskoye fields. 

"The Gydan and Yamal peninsulas have a vast resource base that allows the production of over 70 million tonnes [per annum]; it is comparable to LNG production in Qatar," said Novatek head Leonid Mikhelson at a recent conference. 

Novatek says that building Arctic LNG-2 will require the construction of a $430 million module-building yard, which will be sited near Belokamenka, Murmansk. Mikhelson says that it could break ground as early as this year, leading to thousands of new jobs in the region. 

Novatek is on a sanctions list that prohibits American entities from entering into debt or equity transactions with certain Russian petroleum firms, and the company has relied on the Russian government and Chinese backers to fund its Yamal project. It has also received $400 million from the Japan Bank for International Cooperation, with the possibility of additional financing for Arctic LNG-2 and for the Murmansk yard.

It is unclear whether Yamal LNG (and its successor) will be able to turn a profit in the near term. Aleksandr Kurdin of the Russian Federation's Analytical Center warned last year that the break-even for Russian LNG sales to Europe would be in the range of $300 per thousand cubic meters, a price attainable only if oil reaches $60 a barrel (gas prices are generally pegged to oil). In Asia, a glut of LNG has brought Tokyo spot rates down to roughly $7 per MMBtu, about half the average price in late 2014, when Yamal LNG’s partners gave the project the final go-ahead. Mikhelson insists that Yamal will be profitable even if oil trades in the range of $30 per barrel. "Production costs are very low and liquefaction costs are not bad. I think the [Yamal plant] will be competitive almost everywhere," he said in an interview last year.