Novatek pretends to play a major role in the production of LNG in Russia

By 2030, its share may amount to two-thirds of total production in the country.
"We do not sign contracts that we can not provide," Lev A. Feodosyev, deputy chairman of Novatek's board, said at a presentation of the company's development strategy until 2030. He spoke about the domestic gas market where the company sells approximately 66.1 billion cubic meters. m of gas per year. Gas consumption in the domestic market will remain at the current level (about 430 billion cubic meters per year), and the uncertainty of regulation of this market makes it difficult to make investment decisions on new projects, the document says.

But in the Russian market of liquefied natural gas (LNG) production Novatek wants to become the main player by 2030. So far, in Russia there was one LNG plant, which operates under the Sakhalin-2 project (production - 10.9 million tons). On December 6, Novatek launched the first stage of the Yamal LNG plant. The second phase can be introduced in 2018, the third - at the end of 2018 or early 2019 (each of them 5.5 million tons each). By 2021, the company intends to increase production at this project to 17.4 million tons by building a fourth line based on Russian technologies.

The construction of capacities for liquefying gas Novatek intends to spend 2.5-2.8 trillion rubles. Another Novatek plant, Arctic LNG 2, can start operations in 2022. In total, it is planned to build three lines - 6 million tons each. By 2030, Novatek plans to double its gas production to 126 billion cubic meters. m, almost all the growth in production will be on the company's LNG projects.

As a result, by 2030 the company can become the dominant producer and exporter of LNG in Russia, increasing production to 55-57 million tons per year. And in the future, taking into account supplementary exploration, 72 million tons will be produced, which is comparable with the production of LNG in Qatar. Russia by 2030 will produce more than 80 million tons of LNG, the company's share is approximately 2/3.

The government, according to the predecessor of Novatek, Leonid Mikhelson, expects that Russia will take 15-20% of the world LNG market. At the same time, the company is unlikely to participate in LNG projects abroad, as there are not so low costs as on the current projects of Novatek, he noted. Novatek's projects are widely supported by the Russian government, they have the lowest tax burden in the oil and gas sector and the highest levels of profit and cash flows, analysts at Renaissance Capital write: "We do not expect this to change."

The main market for Novatek LNG is the countries of the Asia-Pacific region, in the summer months it will deliver the liquefied gas there by the Northern Sea Route via Kamchatka (where a terminal is planned to be built for 60 billion rubles), in winter - through the Suez Canal. In the first case, the costs will be $ 2-2.9 per British thermal unit, in the second - $ 2.5.

Novatek in the European market will not compete with Gazprom, as well as US producers, believes the portfolio manager of GL Asset Management Sergei Vakhrameev. "LNG and gas deliveries are contracted from different companies," he explained.

"Novatek" is oriented to the Asian markets, so as not to create excessive competition for Gazprom in Europe, the analyst of Raiffeisenbank Andrei Polischuk said. But as it will be decided who will be able to supply gas to the growing market of India and to other countries of the Asia-Pacific region, the question is open, says the expert.

Novatek expects growth in LNG supplies by the mid-2020s. by 22 million tons, more than twice the current capacity of the Gazprom project on Sakhalin, said Georgy Vaschenko, head of operations at the Russian stock market at Freedom Finance.

LNG is a liquid commodity, new points of growth in demand for it are regions remote from extraction, where the main deliveries will go, says BCS analyst Kirill Tachennikov. With the development of markets and technologies, with rising commodity prices, the cost of LNG can be compared to the cost of pipeline gas, but this can happen on the horizon from 10 to 20 years, he adds.