Russia’s largest independent gas producer Novatek said Wednesday its final partner in the massive Arctic LNG 2 project will likely be an Asia-Pacific customer, with a deal possibly completed in days.
“It will be most likely (from) Asia,” Novatek CFO Mark Gyetvay said on the sidelines of the 11th Asia Pacific Summit in Singapore. “The Asia Pacific market or customers in (the) Asia Pacific market have been interested in our project.”
He said an agreement with a fourth and final partner is expected to be signed by the end of the month, with each project holder taking liquefied natural gas (LNG) supply as a share of equity.
Tokyo-based LNG trader Mitsui & Co., Japan Oil, Gas and Metals National Corp. (JOGMEC), and Mitsubishi were reportedly in talks earlier this month with the Russian gas giant.
Earlier this month Russian Energy Minister Alexander Novak reportedly said the country intends to strengthen its cooperation with Japan in terms of funding and technology for LNG and related sectors.
Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe are expected to discuss economic cooperation in numerous areas including energy when they meet in Osaka, Japan on Saturday (June 29) during the G-20 summit.
Russia is increasingly interested in locking in more market share for its LNG in the Asia-Pacific region. The region now accounts for two-thirds of global LNG demand, and demand growth is projected to increase, particularly by China, India, Pakistan and Bangladesh.
Supermajor Total ASA, second only to Royal Dutch Shell plc in selling LNG, holds a 10% interest in the Arctic LNG 2 project, which is slated to be commissioned by 2023. Arctic LNG is to have three liquefaction/production trains with a total capacity of 19.8 million metric tons/year (mmty).
Cost estimates for the project have recently been estimated at $21-22 billion, though cost overruns for large greenfield LNG projects are often the norm. Two subsidiaries of China National Petroleum Corp. each control a 10% share, while Novatek currently holds a 70% stake.
Novatek has previously said it planned to retain a 60% stake in the project, while selling the remaining interest to foreign partners to share financial risks and secure markets for its future LNG production. The company is scheduled to make a final investment decision (FID) on the project between July and September, Gyetvay added.
Although state-run oil major Saudi Arabian Oil Co., aka Aramco, was not mentioned in Gyetvay’s comments, Aramco could become an LNG partner. Saudi Energy Minister Khalid al-Falih reportedly said earlier this month that Aramco had extended an offer to join Novatek’s Arctic LNG 2 project.
“Aramco is interested in global LNG,” al-Falih reportedly said at the time, “but it also has to be commercially attractive,” which is why it has signed memorandums of understanding (MOU) last year with various U.S. energy operators.
Aramco reportedly is willing to sign an MOU with Novatek. “So, we are hoping that they will agree to Aramco’s offer. It’s a commercial transaction, so it has to be profitable for both companies entering into the agreement. Novatek is a very sure investor and they are looking for the best deal, and so is Aramco.”
Al-Falih’s comments came a few weeks after reports that Aramco had withdrawn from earlier negotiations with Novatek because of U.S. sanctions against Russia’s energy sector, as well as financial disagreements over any forthcoming Arctic LNG 2 deal.
When the Arctic LNG 2 project becomes operational Novatek’s total LNG liquefaction capacity would increase to 37 mmty, helping Russia’s LNG plans come to fruition. In May, Putin signed a new national energy security doctrine that made Russian LNG capacity a national priority.
Russia reportedly plans to expand its LNG capacity to 100 mmty by 2035. However, by the mid-2020s, the world’s No. 1 LNG producer Qatar is expected to have a global leading 110 mmty worth of liquefaction capacity.
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