China steps up involvement in Russian gas industry

China signs up to Russian liquified natural gas mega-project that will begin producing in 2022-2023 and is expected to cost US$25 billion

China is further strengthening its links with the Russian energy sector, recently signing up to participate in the next Russian liquified natural gas (LNG) mega-project known as Arctic LNG 2. The deal was originally outlined in April.

On July 22, Novatek announced the final closing of the sale of participation interests in the Arctic LNG 2 Project to a wholly owned subsidiary of China National Petroleum Corporation (CNPC), a wholly owned subsidiary of China National Offshore Oil Corporation (CNOOC), and a consortium comprising Mitsui & Co and Japan Oil, Gas and Metals National Corporation (JOGMEC).

The shareholders are Novatek (60%), Total (10%), CNPC (10%), CNOOC (10%) and the Japan Arctic LNG consortium (10%).

“We now have formed the structure of the project’s participants by successfully closing the sale of interests in Arctic LNG 2,” notes Leonid Mikhelson, Novatek’s chairman of the management board. “The target level of Novatek’s participation has been reached, allowing us to make the final investment decision and optimally use the company's cash flow to finance our new projects.”

Novatek plans to start producing LNG at Arctic LNG-2 in 2022-2023. The overall project costs are estimated at around US$25 billion.

There were press reports that both Saudi Aramco and KOGAS of South Korea were interested in acquiring a stake in the project. But in the end, it has been completed with a strong Chinese element. Novatek has said that it intends to hold 60% of the project, and has no plans to bring in additional equity partners.

However on August 12, Russian Deputy Energy Minister Anton Inyutsyn was quoted on the Energy Ministry‘s website as saying that Novatek is interested in supplying LNG from its Arctic LNG-2 project to Indian companies.

The Arctic LNG 2 project will draw from the hydrocarbon resources of the Utrenneye field. It envisages constructing three LNG trains at 6.6 million tonnes per annum each.

With LNG shipments already coming by sea from Yamal, and its involvement in Arctic LNG 2 now in place, China is also preparing for the first gas to be delivered by the Power of Siberia pipeline.

In May 2014, Gazprom and CNPC signed a sales and purchase agreement for gas to be supplied via the eastern route (Power of Siberia gas pipeline). The 30-year agreement is for Russian gas deliveries to China in the amount of 38 billion cubic meters per year. Gas supplies are scheduled to start this coming December.

In September 2014, Gazprom began the construction of Power of Siberia’s first section, running 2,200 kilometers from the Chayandinskoye field (Yakutia) to Blagoveshchensk (Chinese border).

The second phase of the project will include the construction of a section stretching for about 800 kilometers from the Kovyktinskoye field (Irkutsk Region) to the Chayandinskoye field. The third stage provides for expanding gas transmission capacities between the Chayandinskoye field and Blagoveshchensk.

In September 2016, Gazprom and CNPC signed the EPC contract to construct a crossing under the Amur River within the trans-border section of the Power of Siberia pipeline. Construction in the Chinese territory started in April 2017.

Meanwhile, ice-breaking LNG carriers are currently sailing the northern route to make deliveries to customers in Asia from the Yamal LNG project, taking advantage of the summer navigation period.

On July 25, Novatek announced that the Arc7 ice-class LNG tanker Vladimir Rusanov had completed the Northern Sea Route (NSR) passage eastwards, and delivered a cargo of LNG from the port of Sabetta to the port of Tianjin, the main maritime gateway to Beijing.

The Vladimir Rusanov transited the ice-covered part of the route in only six days, setting a new record for independent passage via the NSR without ice-breaking support. The net voyage time from Sabetta to Tianjin was completed in a record 16 days, which is less than half the time required to transport a cargo of LNG along the traditional westbound route via the Suez Canal and Strait of Malacca. The Arc7 ice-class LNG tankers were designed specifically for the Yamal LNG project.

Yamal LNG has three LNG trains of 5.5 million tonnes per annum each, and one LNG train of 900,000 tonnes, utilizing the hydrocarbon resources of the South-Tambeyskoye field in the Russian Arctic. The Yamal LNG shareholders are PAO Novatek (50.1%), Total (20%), CNPC (20%), and the Silk Road Fund (9.9%).

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Date

13 Aug 2019

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