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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
The calendar spring brought us good news from Russian LNG fields: Gazprom received a positive opinion from the state expertise on the reconstruction of the Sakhalin-2 LNG plant, which envisages the construction of a third LNG production line, and Yamal LNG has started to commissioning 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 among the ten largest producers of liquefied natural gas. It will move from a modest 3th place (8 million tons of liquefaction capacities) to fifth with an annual production volume of about 10,8 million tons. This will happen due to the launch of three stages of the Yamal LNG project.
Map of Russian LNG projects, actual deliveries of Sakhalin LNG 2 and contract structure Yamal LNG
All future products of the new enterprise in the amount of 16,5 million tons per year have already been contracted. Moreover, 85,5% - on long-term liabilities, which neutralizes sales risks for the company. The remaining 14,5% will go on spot to Novatek's trading subsidiary, Novatek Gas & Power Asia.
Yamal LNG is also distinguished by a fairly diversified portfolio of contracts. Moreover, about half of the LNG will go to the Asia-Pacific region under agreements with the Chinese CNPC, the Singapore subsidiary of Gazprom, Gazprom marketing and Trading Singapore, and the subsidiary of NOVATEK.
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, Russia, although an active, but not the only participant in the global LNG construction. Australia, North America, East Africa and a number of other countries are participating in the liquefaction race. Even if no other country authorizes the construction of a new plant, and the technological lines already under construction begin to be loaded at a level close to 100%, an excess supply of LNG with an average volume of 30-50 million tons per year will form on the market, and this will last until 2025.
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.