Novatek Signs String of LNG Agreements

Novatek and Sovcomflot have agreed to create a shipping joint venture called Smart LLC that could involve other participants as well. The MOU was signed on September 4, along with a number of other LNG-related deals between Novatek and other entities.

The joint venture with Sovcomflot will focus on managing the construction and operations of Arctic ice-class LNG carriers to service Novatek's future LNG projects in the Russian Arctic region, including the Arctic LNG 2 project. The newly established company will work with the relevant shipyard to provide the technical designs for future vessels, place shipbuilding orders and supervise their construction. The new company will act as the shipowner and fleet operator as well as arrange vessels financing.

In total, 17 new-generation Arc7 LNG carriers are planned to be built at the Zvezda shipbuilding complex and expected to be delivered from 2023 to 2026. The vessels’ technical specifications will differ from the LNG carriers of the Christophe de Margerie series. Notably, the anticipated vessel design foresees a changed hull shape and better icebreaking capabilities to enable efficient commercial shipments from the Gulf of Ob eastwards along the Northern Sea Route all year round. The vessels will be operated under the Russian flag.

The newly formed SMART LLC will be registered in Vladivostok, and the agreement stipulates that the parties shall form the joint venture by December 31, 2019.

Novatek is the largest independent natural gas producer in Russia, and in 2017, entered the global gas market by successfully launching the Yamal LNG project. The Company’s upstream activities are concentrated mainly in the prolific Yamal-Nenets Autonomous Region, which is the world’s largest natural gas producing area and accounts for approximately 80 percent of Russia’s natural gas production and approximately 15 percent of the world’s gas production. 

Leonid Mikhelson, Novatek’s Chairman of the Management Board, said an optimized model of transporting LNG from the Russian Arctic region via the Northern Sea Route to major global markets, including the Asia-Pacific region, will support the successful implementation of Novatek’s Arctic LNG projects. It will also help reach the goal set by President Vladimir Putin to ensure an increase in annual cargo traffic along the Northern Sea Route to 80 million tons in 2024.

Also signed on September 4 was an MOU with India's H-Energy Global. The MOU envisages cooperation in LNG supplies to India on a long-term basis, joint investment in future LNG terminals of H-Energy and LNG projects of Novatek, as well as establishing a joint venture to market LNG and natural gas from Novatek’s portfolio to end-customers in India, Bangladesh and other markets.

“India is one of the largest and fastest growing LNG markets, and will be one of the main sources of future growth in global demand for natural gas,” said Mikhelson. “The Memorandum of Understanding is an important step towards entering the end customer market in India, which is of great interest to Novatek taking into account our strategic plans to implement new LNG projects and significantly increase our LNG production volumes.”

During Indian Prime Minister Narendra Modi visit to Russia this week, an MOU was also signed between Novatek and India's Petronet LNG Limited on future natural gas cooperation including supplies for power generation and marketing of LNG as motor vehicle fuel. It includes joint investment in developing a network of filling stations and a fleet of LNG-fueled trucks.

An MOU was also signed between Novatek and the Government of the Chukotka Autonomous Area. According to the Agreement, Novatek will consider projects introducing LNG as a fuel for distributed power generation, as well as motor fuel for maritime, automotive transport and mining equipment in Chukotka.

"The Russian Federation fully supports the development of the Northern Sea Route as a yearly navigational route connecting the Asian Pacific and European markets. When our LNG transshipment complex in the Kamchatka Territory and the Arctic LNG 2 project become fully operational, the  ice-class LNG tankers will navigate along the Arctic coast of the Chukotka Autonomous Region year-round and almost daily," Mikhelson. "Using the potential of Novatek’s future LNG projects to supply clean-burning natural gas to remote northern regions will replace traditional energy sources (coal and diesel fuel) with much cleaner natural gas, which contributes meaningfully to protect the ecosystem of the Arctic region."