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

Project Details, Train 1

  • Owner: Novatek (60.00%), Total S.A. (10.00%), China National Petroleum Corporation (10.00%), China National Offshore Oil Corporation (10.00%), Mitsui Group (5.00%), Jogmec (5.00%)[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]
  • Status: Construction[1]
  • Start Year: 2023[2]

Project Details, Train 2

  • Owner: Novatek (60.00%), Total S.A. (10.00%), China National Petroleum Corporation (10.00%), China National Offshore Oil Corporation (10.00%), Mitsui Group (5.00%), Jogmec (5.00%)[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]
  • Status: Construction[1]
  • Start Year: 2024[2]

Project Details, Train 3

  • Owner: Novatek (60.00%), Total S.A. (10.00%), China National Petroleum Corporation (10.00%), China National Offshore Oil Corporation (10.00%), Mitsui Group (5.00%), Jogmec (5.00%)[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]
  • Status: Construction[1]
  • Start Year: 2025[3]

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.[4] 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.[5] The estimated cost is US$21.3 billion. Construction is scheduled to begin in 2018.[6][7] Of the total cost 73.43% will be paid for by Novatek and 26.57% by the Russian Federation.[8]

Reports in July 2017 indicated that Saipem was expected to be chosen as construction contractor on the project.[9]

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.[10] In June 2019 the federal government approved plans to build the terminal in seven stages.[8]

In March 2020, Novatek claimed in the media that the project remains on track despite turbulence in the commodities markets.[11] 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".[12] 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".[13]

In its 2020 financial results, Total disclosed that the project was 45% complete by the end of the year.[14] The overall project costs are estimated to be US$21 billion.[15]

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.[3]

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.[16]

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.[17]

Environmental impacts from heavy dredging works

While heavy environmental impacts have occurred at Novatek's associated Yamal LNG Terminal project,[18] 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.[19]

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.[20]

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.[21] As of March 2020, IJGlobal had identified only China Development Bank as a project financier, though no financial figures were provided.[22] 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.[23]

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”.[24] The state-owned Sberbank, Russia's biggest bank, also announced it was interested to participate in the financing for the project.[25]

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.[26] 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.[15] 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.[27]

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.[28] 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".[29]

In June 2021, both Euler Hermes[30] and SACE[31] published notices on their websites indicating that they were close to taking final financing decisions for the project.

Articles and resources

References

  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 Project Arctic LNG 2, Novatek, accessed Arpil 9, 2021
  2. 2.0 2.1 Vladimir Soldatkin & Jessica Jaganathan, Russia ups LNG race with green light on $21 billion Arctic LNG-2 project, Reuters, September 5, 2019
  3. 3.0 3.1 Vladimir Afanasiev, Yamal LNG brings troubled fourth train online at huge Russian project, Upstream, Jun. 1, 2021
  4. "Novatek Looks to Build Second Arctic LNG Plant," The Maritime Executive, March 29, 2017.
  5. "2017 World LNG Report" International Gas Union, Accessed June 20, 2017.
  6. "Yamal-Nenets government approves Salmanovskoye field development project for Arctic LNG-2," The Arctic, June 23, 2017.
  7. Business Potential in Russian Arctic Oil and Gas Projects, Sozvezdye Association of Oil & Gas Suppliers presentation, May 2016.
  8. 8.0 8.1 [Одобрен проект строительства терминала «Утренний» для проекта «Арктик СПГ-2»], Glavgosexpertiza, Jun. 10, 2019
  9. Saipem seen getting work in Novatek's Arctic LNG 2 project, Reuters, 24 July 2017.
  10. Novatek signs construction contracts for Arctic LNG 2, as Yamal project hits milestone, Arctic Today, Feb. 6, 2019
  11. "Arctic LNG 2 project on track despite market volatility," upstream, Mar. 16, 2020.
  12. "Novatek Greenlights $21 Billion Russian Arctic LNG 2 Plant," Bloomberg, Sep. 5, 2019.
  13. "Russia introduces tax relief for new Arctic LNG projects," Reuters, Mar. 18, 2020.
  14. Andrew Baker, "‘Writing is on the Wall,’ says Total’s Pouyanné as Major Shifting to LNG, Renewables," Natural Gas Intelligence, Feb. 10, 2021.
  15. 15.0 15.1 Andrew Baker, "Russia's Novatek approves Arctic LNG 2 financing of $11 bln by end-Q2", Reuters, Apr. 23, 2021.
  16. "Belokamenka has the fastest-growing coronavirus outbreak in northern Russia," The Barents Observer, Apr. 15, 2020.
  17. Lydia Woellwarth, "Virtual meeting held for Arctic LNG 2 project," LNG Industry, Jun. 12, 2020.
  18. "Russia’s grand LNG project takes its toll on Arctic environment," The Barents Observer, Jan. 8, 2018.
  19. "Arctic gas plant threatens native peoples," China Dialogue, Apr. 3, 2018.
  20. 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.
  21. "FID for Russia's Arctic LNG 2," IJGlobal, Sep. 5, 2019.
  22. "Arctic LNG 2," IJGlobal, accessed March 2020.
  23. "Loan for Acquisition of Interest in Arctic LNG 2 Project in Gydan Peninsula, Russia," JBIC, Jul. 2, 2019
  24. Simon Jessop, "Exclusive: International lenders back $9.5 billion financing for Russia's Arctic LNG 2 - document," Reuters, Sep. 18, 2020
  25. "Sberbank says may finance Arctic LNG-2 for over 2.7 bln euros," Prime Business News Agency, Sep. 10, 2020.
  26. Gabrielle Tétrault-Farber, "Sberbank has approved funds of up to 3 bln euros for Arctic LNG 2," Reuters, Jan. 21, 2021.
  27. Thomas Nilsen, "Arctic LNG 2 aims to raise $11 billion in a 50/50 split between domestic and Asian banks," The Barents Observer, Apr. 1, 2021
  28. Kate Abnett, Simon Jessop, "EU lawmakers urge France, Germany, Italy to ditch Arctic LNG 2 support," Reuters, May 19, 2021
  29. "France To Say Final Word On Arctic LNG 2 Project After Ecological Evaluation - Paris," UrdoPoint News, May 22, 2021
  30. Project Information, Export Credit Guarantees of the Federal Republic of Germany, accessed June 29, 2021
  31. "Environmental and Social Impact Assessment availability for the 'Arctic LNG 2' Project," SACE website, accessed June 29, 2021

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