Russia’s second largest natural gas producer, PAO Novatek, has signed two long-term liquefied natural gas (LNG) supply contracts from its Arctic LNG 2 project with two Chinese distributors. 

A subsidiary of China’s largest independent gas distributor, ENN Natural Gas Co. Ltd., agreed to purchase 0.6 million metric tons/year (mmty) for 11 years from Novatek. Volumes would be delivered to ENN’s Zhoushan LNG import terminal. ENN plans to double capacity at the Zhoushan terminal to 10 mmty by the end of 2024.

Novatek agreed to a second deal with a subsidiary of Zhejiang Provincial Energy Group to supply 1 mmty for 15 years to be delivered to import terminals in China’s Zhejiang province.  

The deals are the latest in a buying spree among China’s natural gas consumers. As spot prices have soared for LNG since early last year, the country’s buyers have increasingly signed small and large long-term deals to secure more of the super-chilled fuel. China surpassed Japan in 2021 as the world’s leading LNG importer, according to data from various government agencies.

Since 2019, Novatek has secured several deals underpinning Arctic LNG 2’s offtake, agreeing to a 3 mmty deal with China’s Shenergy Group, two 1 mmty deals each with Vitol Inc. and Repsol SA, and a 0.5 mmty contract with Glencore plc. The company also has inked 20-year sales and purchase agreements with the project’s participants.

The three train project is scheduled to start up with its first 6.6 mmty train in 2023. The second and third 6.6 mmty trains are scheduled to come online in 2024 and 2026, for a total capacity of 19.8 mmty.

The project’s stakeholders have said Arctic LNG 2 has very low upstream costs with the development of the huge Utrenneye Field on the Gydan Peninsula in West Siberia. The installation of three concrete structures, each hosting one liquefaction train in the Gulf of Ob is expected to contribute to significant capital expenditures reduction – more than 30% per ton of LNG – compared to Yamal LNG. Novatek also has a 50% stake in Yamal LNG on the Yamal Peninsula in Russia’s Far North.

Novatek owns a 60% stake in the project, while China National Offshore Oil Corp., China National Petroleum Corp., Japan Arctic LNG and TotalEngergies SE each hold 10%. Novatek secured financing for the project late last year.

Novatek, also Russia’s largest independent natural gas producer, reached a final investment decision on Arctic LNG 2 in 2019. At the end of the third quarter, the company said roughly 52% of the project’s planned capital expenditures already had been financed internally. Overall, the project is 52% complete, and the first train is nearly 70% complete.