LNG

Novatek, the Russian natural gas company and operator of the Yamal LNG export plant and developer of the delayed Arctic LNG II venture, has reported positive operating data for the second quarter of 2024 amid continued Western sanctions.

TotalEnergies reported declines in annual and quarterly net profits as commodity prices plummeted compared with the previous year while the French major sold over 44 million tonnes of liquefied natural gas and opened the Le Havre floating LNG regasification terminal in France while being further boosted by progress in other oil and gas projects.

Exports of Russian liquefied natural gas cargoes from the Yamal plant in northern Siberia and the Sakhalin plant in Russia’s Far East declined only slightly in the past year as Moscow also adapted its oil export policies under the OPEC+ regime as well as to cope with Western sanctions over Ukraine.

The Russian Finance Ministry said that that the federation’s oil and gas revenues decreased by 26 percent in the first 10 months of the year amid warnings that natural gas and LNG producer Gazprom was heading for record losses and another gas company Novatek faced financial disruption to its Arctic LNG II project.

French energy major TotalEnergies said it was assessing the possible impact of US sanctions on the Arctic LNG II project on the Gydan Peninsula of northern Russia in which it has a direct 10 percent stake and a total interest of 21.5 percent via its shareholding in Russian natural gas company and LNG developer Novatek.

TotalEnergies was a leading player in two Arctic LNG joint ventures and a shareholder in the Novatek company itself as well in the existing Novatek-operated Yamal LNG plant, though announced last year it was looking for ways to pull out after Russia invaded Ukraine in February 2022.

In contrast with other global energy majors like Shell and ExxonMobil Corp. that have cut ties with Russia after its invasion of Ukraine, the French company has held on to several investments, including minority stakes in Yamal LNG and Arctic LNG II.

Before the latest sanctions imposed on November 2 by the US on Russia over the Ukraine invasion, TotalEnergies had said it would honour its gas contracts in Russia as long as there were no sanctions involved.

Consequences

“The consequences of the designation of Arctic LNG 2 as a SDN (special designated nationals) entity by the US authorities on TotalEnergies' contractual commitments to Arctic LNG II are currently being assessed,” said TotalEnergies

The company had previously said in March 2022 it had decided to no longer book proved gas reserves for the Arctic LNG II project nor contribute any more investment capital to the project, which is scheduled to come onstream in the first quarter of 2024.

TotalEnergies booked an impairment of $4.1 billion in its first-quarter earnings of 2022 for Arctic LNG II out of a total of $14.8Bln in Russia-related asset write-downs for all of 2022.

Novatek Chairman Leonid Mikhelson has pledged to bring the Gydan Peninsula liquefaction and export plant on stream in early 2024.

Two liquefaction Trains have already been installed on gravity-based platforms at an LNG assembly yard in the town of Belokamenka in the Murmansk region and have been towed to the site.

Each liquefaction Train installed on the platforms will have production capacity of 6.6 million tonnes per annum to total almost 20 MTPA in nameplate capacity.

During the first half of 2023 a total of over 80 gas wells were completed at the Utrenneye gas field to provide feed gas for Arctic LNG II.

All three liquefaction Trains at the Arctic LNG II plant were originally scheduled to come on stream in a two-year time span from 2023, though issues with the supply of technology have delayed the start-up.

Basic LNG modules were constructed in China for the liquefaction Trains and the first was delivered back in September 2021 to the Murmansk assembly site.

China modules

The modules were built at the Wison shipyard at Zhoushan in the eastern Chinese province of Zhejiang.

The first Chinese module was delivered to the Murmansk yard in September 2021, five months before the Ukraine invasion.

Novatek controls 60 percent of the Arctic LNG II project and its other remaining active partners out with TotalEnergies are from China and Japan.

They are China National Petroleum Corp., China National Offshore Oil Corp. and a consortium comprising Japanese companies, including Japan's Mitsui & Co. and the Japan Organization for Metals and Energy Security, previously known as JOGMEC.

All the shareholders in the project will have offtake. The biggest shareholder Novatek signed sales and purchase agreements in 2022 with two Chinese energy companies, ENN Group and Zhejiang Energy Gas Group.

The Russian company's subsidiary, Novatek Gas and Power Asia, signed a deal with ENN’s trading firm ENN LNG (Singapore) Ltd.

LNG deliveries to ENN will be on a delivered ex-ship (DES) basis whereby Novatek supplies the shipping to ENN’s Zhoushan LNG receiving terminal in eastern China.

The Japan Organization for Metals and Energy Security, a national agency with a stake in the Russian Arctic LNG II project operated by the Novatek natural gas company of Russia, is likely to put Japanese LNG needs over Western sanctions as Japan did when keeping cargo rights from Sakhalin LNG.

“Strengthening mutually beneficial relationships with resource-rich countries is essential for developing oil and natural gas resources,” said the Japanese agency known as JOGMEC.

“As a governmental organization, JOGMEC conducts various projects to support Japan’s resource diplomacy, collaborating with national oil companies and providing technical support for producing countries,” it added in its latest statement on policy.

While Japan like other nations has condemned Russia's invasion of Ukraine it has continued to keep stakes in the Sakhalin LNG plant in the Russian Far East and other energy projects.

Novatek controls 60 percent of the Arctic LNG II project and its other remaining active partners are from China and Japan.

Consortium

They are China National Petroleum Corp., China National Offshore Oil Corp. and a consortium comprising the Japanese trading company Mitsui & Co. and JOGMEC.

Mitsui has said that while it would comply with any sanctions requirements it would take its final guidance from the Japanese Government.

In the case of Russia’s Sakhalin LNG, Japanese companies Mitsui and Mitsubishi maintained their stakes and offtake with the government saying at the time that if Japan ceded its offtake rights they would likely be taken up by China.

Another energy security issue facing Japanese utilities and LNG importers is that Australia could become an unreliable LNG supplier in the future as labor unions begin to exercise control and more hardline policies at LNG plants, readily backed by key members of the governing left-wing and anti-hydrocarbon Labor party.

This action has resulted in a series of strikes and work stoppages at four facilities in Western Australia, raising security of supply concerns in Asia.

Analysts said that crucially the Japanese have a large offtake portion from the Arctic LNG II project on the Gydan Peninsula that is expected to come on stream in early 2024 and they were unlikely to give this up.

Japanese offtake

The Japanese have basic offtake rights from the Gydan venture to 2 million tonnes per annum and could increase that total.

Arctic LNG II will have three liquefaction Trains, each with 6.6 MTPA of capacity.

One of the Trains is already on site after being towed from a construction yard in the Murmansk Region on a gravity-based structure and deployed in the bay where the plant is located.

The biggest Arctic LNG shareholder, Novatek itself, has been signing multiple additional sales and purchase agreements with Chinese LNG players such as the ENN Group and Zhejiang Energy Gas Group.

The ENN SPA stipulates cargoes from Arctic LNG II will amount to a total of 600,000 tonnes per annum will be delivered over a term of 11 years.

LNG deliveries to ENN will be on a ex-ship (DES) basis whereby Novatek supplies the shipping to ENN’s Zhoushan LNG receiving terminal in eastern China. 

Russian natural gas company Novatek has plans to start commercial shipments from the Arctic LNG II project in mid-January 2024 and would likely send three to five cargoes per month eastwards to the Asian market, including China, while Russia’s Sakhalin LNG plant in the Far East has re-started after scheduled maintenance.

Technip Energies, the leading liquefied natural gas engineering company, reported reduced first-half profits and revenues as the full withdrawal from the Arctic LNG II project in the Gydan Peninsula of Russia was completed amid the gain of a lucrative contract for the LNG expansion in Qatar and with a new record backlog of contracts.

Novatek, the Russian natural gas company and operator of the Yamal LNG export plant and developer of Arctic LNG II set to start up by early 2024, has reported positive operating data for the second quarter of 2023 as it continued to supply cargoes to the European Union.

An important logistical link in Russian liquefied natural gas trading, a huge floating storage unit called “Saam FSU”, was heading past the Norwegian coast on June 20 for its destination port of Murmansk.