Arctic LNG 2 Terminal

From Global Energy Monitor
This article is part of the Global Fossil Infrastructure Tracker, a project of Global Energy Monitor.
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Arctic 2 LNG Terminal is an under construction LNG terminal in Gydan Peninsula, Russia.

Location

The map below shows the approximate location of the proposed terminal, on Gydan Peninsula, in Tazovsky District, Yamalo-Nenets Autonomous Okrug, across the Gulf of Ob from Yamal LNG Terminal.

Loading map...

Project details

Train 1

  • Operator: OOO Arctic LNG 2[1]
  • Owner: OOO Arctic LNG 2[1]
  • Parent company: Novatek (60%), Total S.A. (10%), China National Petroleum Corporation (10%), China National Offshore Oil Corporation (10%), Mitsui Group (5%), Jogmec (5%)[1]
  • Location: Gydan Peninsula, Tazovsky District, Yamalo-Nenets Autonomous Okrug, Russia
  • Coordinates: 71.085, 73.677 (approximate)
  • Type: Export[1]
  • Capacity: 6.6 mtpa[1][2]
  • Status: Construction[1]
  • Cost: US$21.3 billion (for all three trains)[3]
  • Financing: €9.5 billion (US$10.7 billion) in loans from Russian and European commercial banks, and from several export credit agencies[3]
  • Start year: 2023-2024[4]
    • Originally 2023[5]

Train 2

  • Operator: OOO Arctic LNG 2[1]
  • Owner: OOO Arctic LNG 2[1]
  • Parent company: Novatek (60%), Total S.A. (10%), China National Petroleum Corporation (10%), China National Offshore Oil Corporation (10%), Mitsui Group (5%), Jogmec (5%)[1]
  • Location: Gydan Peninsula, Tazovsky District, Yamalo-Nenets Autonomous Okrug, Russia
  • Coordinates: 71.085, 73.677 (approximate)
  • Type: Export[1]
  • Capacity: 6.6 mtpa[1][2]
  • Status: Shelved (in May 2022, after construction had started)[1][6]
  • Start year: 2024[5]

Train 3

  • Operator: OOO Arctic LNG 2[1]
  • Owner: OOO Arctic LNG 2[1]
  • Parent company: Novatek (60%), Total S.A. (10%), China National Petroleum Corporation (10%), China National Offshore Oil Corporation (10%), Mitsui Group (5%), Jogmec (5%)[1]
  • Location: Gydan Peninsula, Tazovsky District, Yamalo-Nenets Autonomous Okrug, Russia
  • Coordinates: 71.085, 73.677 (approximate)
  • Type: Export[1]
  • Capacity: 6.6 mtpa[1][2]
  • Status: Shelved (in April 2022, after construction had started)[1][6]
  • Start year: 2026[7]
    • Originally: 2025[8]

Note: mtpa = million tonnes per year; bcfd = billion cubic feet per day

Background

Novatek announced Spring 2017 its intentions to build the Arctic 2 liquefied natural gas (LNG) liquefaction terminal in Gydan Peninsula in Western Siberia, Russia. Arctic LNG 2 would export gas from Novatek's Salmanovskoye (Utrenneye) and Geofizicheskoye fields.[9] The project's other shareholders are Total (10%), Japan Arctic LNG (10%) and the Chinese companies CNOOC (10%) and CNPC (10%).

The plan is for three 5.5-million-ton-per-year (mtpa) stages to be built: Stage 1 to be completed in 2022, Stage 2 in 2023, and Stage 3 in 2025.[10] The estimated cost is US$21.3 billion. Construction is scheduled to begin in 2018.[11][12] Of the total cost 73.43% will be paid for by Novatek and 26.57% by the Russian Federation.[13]

Reports in July 2017 indicated that Saipem was expected to be chosen as construction contractor on the project.[14]

In February 2019, Novatek announced that it had signed construction agreements with Siemens, a German conglomerate, as well as Saipem of Italy and Renaissance Heavy Industries of Turkey.[15] In June 2019 the federal government approved plans to build the terminal in seven stages.[13]

In March 2020, Novatek claimed in the media that the project remains on track despite turbulence in the commodities markets.[16] According to Hiroshige Seko, Japan's Minister of Economy, Trade and Industry, "Arctic LNG 2, based on its costs, is the largest project in the history of Japanese-Russian relations".[17] Also in March it was reported that Russian president Vladimir Putin had introduced into law fresh tax relief for new LNG projects in the Arctic. Novatek was reported to be the primary beneficiary of this new "zero-rate extraction tax".[18]

In its 2020 financial results, Total disclosed that the project was 45% complete by the end of the year.[19] The overall project costs are estimated to be US$21 billion.[20]

In May 2021, Novatek chairman Leonid Mikhelson told Russian president Vladimir Putin that Train 3 would be operational in 2025, a year earlier than planned. The overall project was said to be 53% completed as of the end of May.[8]

In January 2022, Novatek announced that it had signed separate LNG sales and purchase agreements (SPAs) for volumes from the Arctic LNG 2 project with the Chinese independent energy company ENN and the provincial authority Zhejiang Energy. ENN signed up for 0.6 mtpa of LNG over a term of 11 years.[21] Zhejiang will buy up to 1 mtpa over 15 years.[22] These two deals are in addition to the equity volumes to be lifted by Chinese state oil companies CNPC and CNOOC, which each own 10% of Arctic LNG 2.

In March 2022, TotalEnergies announced it would no longer book proved reserves for the project. According to Offshore Energy, this is due to "the uncertainty created by the technological and financial sanctions on the ability to carry out the Russia-led project and the probability of tightening with the worsening situation with the invasion of Ukraine." TotalEnergies sees EU sanctions on Russia as additional risk to the project and therefore decided to record a $4.1 billion impairment on its accounts concerning the project.[2]

In May 2022, as a result of sanctions imposed on Russia for the war on Ukraine, the Chinese company tasked with building the second and third trains decided to suspend its relationship with the owners.[6] Novatek reportedly halted construction of Train 3 in April 2022 and Train 2 in late May 2022.[6]

As of June 2022, a start year for Train 1 was noted to be 2023, but that it was likely delayed by sanctions. As a result, the start year for the first train is now estimated at 2024.[4]

Coronavirus outbreak

Despite more than 200 construction workers contracting the coronavirus at Novatek's Kola Yard supply base, which is being built to support the planned Arctic LNG 2 Terminal, the company said on April 15, 2020 that work at the site will continue. Belokamenka, where Kola Yard is located, in the Murmansk region has the fastest-growing rate of coronavirus in northern Russia, with the outbreak thought to be most severe within the construction site. The Barents Observer reported that there are about 4,600 workers on the site in Belokamenka, where fly-in, fly-out employees, many of them foreign nationals, are housed in cramped conditions in barracks.[23]

In June 2020, Novatek publicised that, in spite of the impact of COVID-19, the project's development remained on schedule and was estimated to be 19% complete.[24]

Environmental impacts from heavy dredging works

While heavy environmental impacts have occurred at Novatek's associated Yamal LNG Terminal project,[25] the initial environmental assessment for Arctic LNG 2 was approved in early 2018 by the Yamal government and representatives of the Yamal Association of Indigenous Peoples.[26]

However, Russian environmentalists have expressed concerns over the expected impacts on marine life owing to the massive dredging work that will be carried out by the project promoters to remove approximately 80 million tons of sea bottom from the vicinity of the project. According to researchers at the Ural Institute of the Ecology of Flora and Fauna, the dredging could result in several marine species unique to the region becoming extinct, such as sturgeon, whitefish, smelt and freshwater cod.[27]

Financing

The final investment decision (FID) for the project was reached in September 2019. Financial close, expected to involve 30% debt financing, is not expected until 2020.[28] As of March 2020, IJGlobal had identified only China Development Bank as a project financier, though no financial figures were provided.[29] In July 2019, the Japan Bank for International Cooperation (JBIC) granted a loan of up to 125 million euros to allow the Japan Arctic LNG company, a Dutch entity, to acquire a 10% stake in Arctic LNG 2. This loan is co-financed with undisclosed private financial institutions.[30]

In September 2020, Reuters reported that it had seen a document outlining the preparation of US$9.5 billion in funding support for the project from a range of international financiers: a US$700 million loan from France's state investment bank and credit agency Bpifrance; US$5 billion from the China Development Bank; US$300 from Germany’s Euler Hermes; US$2.5 billion from JBIC; US$1.5 billion from an unidentified Russian bank, and; a lending facility of US$1 billion from Italy’s export credit agency SACE. In a response to the exclusive report from Reuters, Bpifrance said “the decision to grant a public guarantee within the framework of the Arctic LNG 2 project has not been taken”.[31] The state-owned Sberbank, Russia's biggest bank, also announced it was interested to participate in the financing for the project.[32]

In January 2021, Russian state-owned Sberbank disclosed that it had approved financing of up to €3 billion (US$3.64 billion) for the Arctic LNG 2 project.[33] In April 2021, it was reported that Novatek's shareholders had approved external financing of US$11 billion for the project. To be finalised by the end of Q2 2021, the fund-raising is to be split three ways between Russia, China, and Japan and Europe combined.[20] While the financiers and loan amounts were not yet confirmed, The Barents Observer, citing information from the Russian business daily Kommersant, reported that loans covering 51.6% of the overall investment will be provided by:

  • The Russian banks VEB.RF, Sberbank and Gazprombank, covering half of the total lending
  • China Development Bank (CDB), the Export-Import Bank of China, the Japan Bank for International Cooperation (JBIC), Intesa Sanpaolo and Raiffeisen Bank International, covering the other half.


The remaining US$10 billion is expected to be raised by the project's shareholders.[34]

In May 2021, 39 members of the European Parliament from the Left, Greens, Socialist and Democrats and Renew Europe political groups wrote to the French, German and Italian governments asking them to cease providing state-backed underwriting to the US$21 billion Arctic LNG 2 project. "We urge the French, German and Italian governments to refuse to support this project and set a new standard by ending all export finance support to fossil fuels before COP26," the letter said. France's Bpifrance, Germany's Euler Hermes and Italy's SACE – the countries' respective export credit agencies – are also said to be among the state-backed international lenders considering providing about US$9.5 billion in financial support for the project. Bpifrance and SACE, according to Reuters, did not respond to requests for comment, while the German government said that the application made to Euler Hermes for an export credit guarantee linked to Arctic LNG 2 was still under review.[35] Following the European parliamentarians' intervention, a spokesperson for the French Foreign Ministry confirmed to journalists that Arctic LNG 2 was under consideration by Bpifrance and commented that "France's final position will be determined, in particular, in the light of the project's social and environmental assessment".[36]

In June 2021, both Euler Hermes[37] and SACE[38] published notices on their websites indicating that they were close to taking final financing decisions for the project.

In September 2021, Novatek's CEO Leonid Mikhelson disclosed to Reuters that France's export credit agency (ECA) Bpifrance was now not going to financially support the Arctic LNG 2 project.[39] Mikhelson also appeared to be doubtful about the hoped for participation of Germany and Italy's ECAs, commenting that "We have (European) partners in place, while we don't see support from the governments of these partners". He also suggested that financing from Russian banks, currently planned to provide a third of the total US$11 billion debt financing, could rise to 60% of the total, with Chinese and Japanese banks providing the rest of the financing.[40]

Financial close

More than two years after Novatek and its partners took a final investment decision on the Arctic LNG 2 terminal, a €9.5 billion (US$10.7 billion) financing package was finalised for the project in November 2021. The largest portion of the 15-year project financing line, €4.5 billion, will be provided by a consortium of Russia's largest commercial banks: Sberbank, Gazprombank, VEB Bank and FK Otkrytiye Bank. A further €2.5 billion is being provided by China Development Bank and Export-Import Bank of China. The Japan Bank for International Cooperation, Italy's SACE and several unidentified other creditors are involved in the remaining €2.5 billion lending portion.[3]

Reuters reported comments from Italy's ambassador to Russia that Italian export credit agency SACE will provide insurance coverage for funding from Italian bank Intesa Sanpaolo and state lender Cassa Depositi e Prestiti.[41] While the involvement of Germany’s Euler Hermes remains unconfirmed, French NGOs welcomed the ultimate non-involvement of Bpifrance in the project. Anna-Lena Rebaud at Friends of the Earth France commented: "France’s backing away from such a project sends a strong signal. Emmanuel Macron is indirectly acknowledging that continuing to extract gas is problematic for both the climate and biodiversity."[42]

Articles and resources

References

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  22. "NOVATEK and Zhejiang Energy Sign Sales and Purchase Agreement on Long-Term LNG Supply," Novatek press release, Jan. 11, 2022
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  27. Atle Staalesen,"More than 100 million cubic meters of sea bottom is removed from this Arctic bay to make way for grand natural gas project," The Barents Observer, Jun. 17, 2020.
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  30. "Loan for Acquisition of Interest in Arctic LNG 2 Project in Gydan Peninsula, Russia," JBIC, Jul. 2, 2019
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  32. "Sberbank says may finance Arctic LNG-2 for over 2.7 bln euros," Prime Business News Agency, Sep. 10, 2020.
  33. Gabrielle Tétrault-Farber, "Sberbank has approved funds of up to 3 bln euros for Arctic LNG 2," Reuters, Jan. 21, 2021.
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  40. Vladimir Soldatkin, Novatek says Japan, China may boost Arctic LNG 2 funding as EU cools, Reuters, Sep. 3, 2021
  41. Giuseppe Fonte and Stephen Jewkes, Italy's SACE to provide insurance coverage for Arctic LNG 2 project financing – ambassador, Reuters, Nov. 18, 2021
  42. Arctic LNG 2 : Contraint par la mobilisation citoyenne, Emmanuel Macron ne soutiendra pas TotalEnergies cette fois-ci, Friends of the Earth France press release, Dec. 1, 2021

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