Novatek to launch second LNG plant, delays Yamal plant

Independent gas producer Novatek will commission a second plant to liquefy gas on the Gydan Peninsula, according to a Russian government resolution.

The Gydan plant will have three production lines with 5.5 mt capacity each. The first will be commissioned in 2022, the second in 2024, and the third in 2025. Construction of the first line of the Yamal LNG plant is slated to begin in 2018.

The government also said the first train of the Yamal LNG plant, already under construction and which took FID last week, will reach design capacity in 2018, a delay of a year. The company had earlier said the first train would launch in 2016, this then slipped to 2017.

“[The delay] does not mean the company cannot outperform the government’s expectations, but it looks like the government is trying to give the company room to manoeuvre,” Alexander Kirevnin, oil and gas analyst at VTB Capital, told Interfax. “The climate is very harsh and no one in the joint venture has special experience, so it is a really tough project.”

Novatek has said it is targeting total production of 112.5 billion cubic metres in 2020, 44.4 bcm of which is to come from Yamal and Gydan. It was announced on the Kremlin’s website in October that Novatek will pay no Mineral Extraction Tax on export duty from gas fields on the Gydan peninsula, if it is shipped to the Yamal LNG plant.

“When you look historically at their production forecast reaching over 100 bcm, Gydan peninsula development has always been a big chunk of that,” Oxford Institute for Energy Studies analyst James Henderson told Interfax. “[I think] they are talking about this second plant because it ties in with those tax breaks and production forecast.”

Demand for LNG after 2020 remains uncertain, with a number of projects in Australia, Papua New Guinea and the United States scheduled to be operational by then.

The plan is to select a site for the second LNG plant and pipeline routes between 2014 and 2015, the resolution says, and then build up facilities at the deposits and build pipelines between 2015 and 2025.

Gas from Severo-Obsky and Vostochny sections belonging to Novatek and located on the Gydan Peninsula will feed the Yamal LNG plant and be liquefied. Gas from these two deposits will probably not reach the LNG plant on Yamal until 2030.

The resolution also calls for geological research, deposit-opening, prospecting and building up deposits, and pipeline construction between 2013 and 2030.