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Russian LNG in the ATR market: seriously and for a long time
The NOVATEK project promises to be very attractive to consumers
Director of Research, VYGON Consulting
The calendar spring has brought us good news from Russian LNG fields: Gazprom received a positive opinion from the state expertise on the reconstruction of the LNG plant of the Sakhalin-2 project, which provides for the construction of the 3 LNG production line, and Yamal LNG embarked on to start-up and commissioning works of the second stage of the plant, which will be launched in the third quarter of this year. Thus, by the end of this decade our country will strengthen its position in the top ten largest liquefied natural gas producers. From a modest 8 site (10,8 million tons of liquefaction capacity), it will move to the fifth with an annual production volume of about 27 million tons. This will be due to the launch of three phases of the Yamal LNG project.
Map of Russian LNG projects, actual deliveries of Sakhalin LNG 2 and contract structure Yamal LNG
All future production of the new enterprise in the amount of 16,5 million tons per year has already been contracted. And 85,5% - on long-term obligations, which eliminates the marketing risks for the company. The remaining 14,5% on spot terms will go to Novatek's trading daughter, Novatek Gas & Power Asia.
Yamal LNG also benefits from a diversified portfolio of contracts. About half of the LNG will be sent to the Asia-Pacific region as part of agreements with the Chinese CNPC, the Singapore subsidiary of Gazprom, Gazprom marketing and Trading Singapore, and NOVATEK's subsidiary.
As for the competitiveness of Russian LNG in the APR, its cost, taking into account the delivery to the region in 2020, will be one of the most attractive, leaving behind American and Australian LNG.
In the case of the Yamal LNG project, and its gas, taking into account the delivery to Japan in 2020, will cost 174 $ / thousand. (for comparison: LNG from the USA - 165 USD / thousand cubic meters, from Australia - 375 USD / thousand cubic meters) this is explained by low production costs and relatively low costs for liquefaction (especially in dollar terms). The presence of state support also plays a role, including through the granting of privileges on MET and the abolition of the 30% export duty. The construction of a marine terminal for LNG transshipment in Kamchatka planned by NOVATEK will allow optimizing logistics and reducing the cost of transporting Yamal gas to the APR countries.
LNG shipments from the plant under the Sakhalin-2 project have been carried out for 9 years, almost by 100% are for the APR countries (see figure) and because of the small transport arm provide high operating profitability at gas prices of 285 USD. / thous. cu. m, since the cost of Sakhalin LNG, taking into account the delivery to Japan, is 151 $ / thousand. cu. m.
However, although Russia is active, it is not the only participant in the global LNG construction. The liquefaction race involves Australia, North America, East Africa and a number of other countries. Even if no other country authorizes the construction of a new plant, and the currently constructed technological lines will be loaded at a level close to 100%, an excess of LNG supply will be generated on the market at an average level of 30-50 million tons per year, and It will last until 2025 year.
The mentioned Russian plants, even in such an unfavorable situation for liquefied gas producers, will be in demand, primarily in the APR market, as they are distinguished by the competitive offer of LNG, as well as the availability of long-term contracts.