Novatek plans to build an LNG plant in the Murmansk region. The region makes it possible to minimize the effect of sanctions. However, the risks of the global market and the need for compromises with Gazprom remain, without whose gas the project may not take place.
In the Murmansk region, Novatek plans to build the most powerful LNG plant in Russia with a capacity of 20.4 million tons. According to Kommersant, citing sources, they want to start construction of the first line of three in the village of Belokamenka, where the Center for the Construction of Large-tonnage Offshore Structures is located, as early as mid-2024. Although the exact location of the platforms in the waters of the Kola Bay is still unknown, the project is planned to be launched from the end of 2027.
“The necessary design surveys and assessments are underway. The main technical conditions for power supply are being worked out. Also, for the construction of the necessary main gas pipeline with a design capacity of up to 30 billion cubic meters. meters of gas per year, we expect technical conditions from PJSC Gazprom for connection to the UGSS for resource support of the project”, Novatek told Kommersant.
The advantages of the project are the maximum reduction in the effect of sanctions restrictions and the possibility of loading gas that has become unnecessary for export to Europe due to sabotage at Nord Stream. So, instead of gas turbines, which were banned from supplying to Russia due to sanctions, the plant can use electric drives that are produced in Russia and connect the project to the Kola NPP. The waters of the Kola Bay, in turn, as well as the route to Europe, do not freeze, which eliminates the need to attract ice-class gas carriers, the commissioning of which for Novatek’s second Arctic project, Arctic LNG-2, is already delayed.
The problem is that Novatek does not have its own gas for the project, and there is also no gas pipeline from the Unified Gas Supply System (UGSS) to the Murmansk Region.
The project was discussed with the Deputy Prime Minister Alexandra Novak, and Novatek plans to receive gas from the UGSS through the still unbuilt Volkhov-Murmansk-Belokamenka gas pipeline with a length of 1.3 thousand kilometers, Kommersant writes. They added that Gazprom had begun designing the Murmansk-Volkhov gas pipeline this year and had previously estimated its cost at 350 billion rubles: “This gas pipeline has been discussed for a long time, but the project is stalling due to the high cost and low demand for gas in the region.”
Independent industrial expert Maxim Khudalov notes that given the availability of spare gas capacity in the northwest direction, the idea of building an LNG plant with a capacity of more than 20 million tons makes sense.
“This will additionally load the Kola NPP. In addition, the liquefaction technology will be based mainly on domestic solutions and technologies from friendly countries, which will allow them to run in and subsequently scale up the experience gained,” the expert adds.
Deputy Director of the National Energy Security Fund (NESF) Alexey Grivach believes that an LNG plant in the Murmansk region will be an interesting project, including for Gazprom, if implemented on genuine commercial terms.
“The market price of raw gas and the market price of transportation services to the future plant. You can also think about the “American” tolling scheme. Since Novatek does not currently have raw materials for the plant, it can sell liquefaction services at a fixed price, and if they are attractive to the owner of the resource for the purpose of subsequent LNG export, I think he will use this option with pleasure,” – says Alexey Grivach.
If an internal compromise can be reached, then the risks of the global market will not disappear. The place for the new LNG project is in a more convenient location for supplies to Europe, and the governments of the EU countries are purposefully trying to force companies not to enter into new contracts for the supply of LNG from Russia.
“The market is becoming more and more globalized. The number and volume of arbitrage transactions are growing. But there are certainly commercial and political risks. Moreover, our sworn partners have shown their innocence to the dirtiest and most dangerous methods of competing with Russian gas,” Alexey Grivach, deputy director of the FNEB, says.
In addition, by 2029-2030, a fairly large number of gas liquefaction projects will enter the world market, the work of which can seriously worsen the payback of the company’s project, Maxim Khudalov adds. Nevertheless, in his opinion, given the need to diversify Russian gas supplies to foreign markets, this decision seems to be strategically reasonable.
Independent Energy Expert Alexander Sobko believes that, in principle, companies from the Asia-Pacific region can also become buyers of LNG.
“Of course, the remote location from Asian markets somewhat reduces competitiveness compared to, for example, US LNG. But the difference in delivery costs is not that significant, and can be offset, for example, by the lower cost of feed gas,” — the expert notes that year-round navigation along the Northern Sea Route (NSR) to the east is planned around 2030, but Yamal LNG is already using the European route.
“If we talk about the winter period, when navigation along the NSR stops, then ships from Yamal also take a detour route, and here Murmansk LNG even wins in terms of logistics against Arctic projects,” notes Alexander Sobko.