Crunch Time Looms for Novatek’s Arctic LNG-2
Novatek’s Arctic LNG-2 project reaches an important mile- stone at the end of this month when it completes its front-end engineering and design (Feed), which it hopes will con- vince investors it can execute the project at a competitive cost. France’s Total has already agreed to buy 10% of Arctic LNG-2 for $2.55 billion (NC May31’18). Aiming to keep 60% for itself, Novatek is looking for partners to take up the remaining 30%. Novatek Deputy CEO Mark Gyetvay, in an interview with Energy Intelligence on the sidelines of the Oil & Money conference in London last week, said that “many in- vestors are just waiting to understand what the cost of the GBS [gravity-based structures] will be, and I think if we con- firm through the Feed study that this indeed is the cost of $20 billion-$21 billion that [Novatek CEO] Mr. Mikhelson mentioned earlier, we will be able to get the deal closed.” Novatek plans to construct module-based liquefaction trains on GBS platforms in Murmansk with the subsequent transfer of the ready trains to the Arctic LNG-2 Utrenneye terminal in the Ob Bay. This is seen as the key factor that should reduce costs (NC Aug.2’18). With the use of GBS, “the onshore facility is principally limited to the field development activity for the most part,” Gyetvay said. “And so, the pipeline will be built that goes into the terminal facility that gets connected onto these GBS structures and the vessels come and load directly from the GBS structures. That’s a massive cost saving on the construc- tion from building everything onshore via permafrost,” Gyetvay explained. The $27 billion onshore Yamal LNG plant launched by Novatek at the end of last year was built on site in the severe climate of the Arctic port of Sabetta, which inflated labor and shipping costs for equipment.Novatek is very well aware of the fact that costs are cru- cial for all LNG producers to be able to deliver to market the most affordable gas, although Gyetvay insisted the company’s product is competitive with US LNG and even Qatari gas. Total CEO Patrick Pouyanne told reporters on the side- lines of the Oil & Money conference that there are no prob- lems with resources that Novatek has, “you just have a prob- lem of being efficient and driving the cost down.” Another way that Novatek tries to reduce cost is “through.
Uzbekistan Opens for Business As Majors Line UpAs it revs up its campaign to attract more foreign investment in its energy sector, Uzbekistan is in the process of rebrand- ing its state oil and gas company Uzbekneftegas (UNG) and is prepping it for a debut eurobond that could happen as early as next year, UNG’s deputy chairman, Ulugbek Sayidov, tells Energy Intelligence in an interview.
Since his election in late 2016, Uzbekistan’s President Shavkat Mirziyoyev has unveiled a series of measures to en- tice international oil companies and financial investors, such as loosening currency restrictions and streamlining decision- making. Sayidov says additional steps have been taken, in- cluding declassifying production and financial data that were kept confidential during the long reign of former President Islam Karimov. Sayidov says these new steps are designed to “speed up collaboration with international investors and fi- nancial institutions.” Encouraged by the progress made so far, international majors such as Total and BP have signed agreements with UNG to cooperate in oil and gas exploration (NC Oct.11’18). Alliances have also been struck with Asian national oil com- panies (NOCs). During a visit by Mirziyoyev to New Delhi last month, UNG signed an upstream pact with Indian state oil company ONGC. Similar deals have been made with Azerbaijan’s Socar and South Korea’s Korea National Oil Corp. Uzbekistan is also hoping to secure more investment from US oil companies, mostly in the service sector, Sayidov says. During a presidential trip to the US in mid-May, UNG signed cooperation deals with the likes of Halliburton, Honeywell and General Electric and has service agreements in place with Russian companies such as Tatneft and Zarubezhneft to increase oil and gas production. Financial investors are also taking a much closer interest
optimizing the logistical part.” For that, the company plans to build transship- ment facilities in Kamchatka in the east and in Murmansk in the west for re- loading LNG into conventional tankers from the more expensive Arc7 ice-class LNG carriers (NC May31’18). This could save up to $1 per million Btu, dropping to $1.65 from $2.50 now, ac- cording to Gyetvay. A final investment decision (FID) on Arctic LNG 2 — to be a three-train facility with 6.6 million metric tons per year each — is to be taken after a consortium of foreign partners is formed. “It’s proper that the decision is made in conjunction with the part- ners. It’s the only right way to do it.” Among those that are interested in becoming partners in the project are China National Petroleum Corp., South Korea’s Kogas and a consortium of Japanese investors.
Saudi Energy Minister Khalid al- Falih said in Moscow on Oct. 3 that Saudi Aramco is “in advanced discus- sions” over joining Arctic LNG-2 (NC Oct.4’18). Gyetvay noted that Saudi Aramco “was in our data room.” He added there could be one major buyer or two partners taking smaller stakes. The FID is also to be taken with- out sales contracts in place since 70% of the costs are to be raised through equity, with the remaining 30% to be debt-financed. This structure “doesn’t necessitate that we have to have a large quantity of LNG presold to support that level of financing,” Gyetvay said. Indeed, Total and other partners are expected also to lift LNG volumes from the project, similar to the way partners in Yamal LNG do. Besides, Gyetvay believes that with the development of the LNG spot trade, offtake contracts would be less required by banks, similar to oil proj- ects where financing doesn’t depend on sales deals concluded beforehand. Gyetvay confirmed that a large portion of output from Arctic LNG-2 and future projects will move into the spot market, and Novatek is eyeing a bigger trading role. “Actually, the bigger we get, we’re obviously going to need more trading operations to be able to move these volumes into the marketplace where we see that we’re able to achieve the ultimate netbacks.” Under Novatek’s development strategy approved at the end of last year, Novatek intended to be supply- ing up to 57 million tons of LNG an- nually to global markets by 2030. However, recent discoveries and grow- ing demand made the company in- crease its target to a possible 70 mil- lion tons/yr of LNG. Gyetvay said de- mand and cost effectiveness would be the main factors for the company to raise its sights. Having always said that Asia is the target market for its LNG, Novatek now sees growing opportunities in Europe where deliveries are becoming more attractive. Besides, with LNG re- gasification facilities being built in Germany, Lithuania and other coun- tries, “Europe has really positioned it- self to open up its marketplace for the receipt of LNG,” Gyetvay said.
Nelli Sharushkina, London
The full interview will be published soon in Nefte Compass.
Businessin Uzbekistan now that the country plans to engage for the first time with the global capital markets, with a $300 million sovereign eurobond due to be launched by the end of the year (NC Sep.20’18). The restructuring of UNG is part of this process. “The govern- ment and the leadership of UNG are taking steps to streamline and improve the organizational structure,” Sayidov says, stressing that the company “ten- tatively” plans to issue bonds next year. He says moves are being made to improve transparency and corporate governance, with the company’s ac- counts to be audited by EY. This in turn, he says, requires an independent assessment of hydrocarbon reserves based on international standards, which he says is now being done by US-based DeGolyer & MacNaughton. UNG is also working with the Asia Development Bank to provide techni- cal assistance toward UNG’s “corporate transformation.” There is also a plan to enlist leading NOCs to carry out re- search for UNG and make recommen- dations based on their experiences.
Uzbekistan is currently producing 60 billion-65 billion cubic meters per year of gas, and, according to a five- year plan outlined by the president in 2017, the target is to increase output by 22% by 2021. Most of UNG’s pro- duction and reserve base is concen- trated in the Kashkadarya and Bukhara regions, while the Ustyurt and Fergana areas are “promising,” he says. The biggest gas producer in the country is Russia’s Lukoil, which oper- ates the Khauzak-Shadinsky, Kandym and South-West Gissar fields, which together can produce around 16 Bcm/ yr, according to Sayidov. He says pro- duction from the Shakhpakhty field being developed by Russia’s Gazprom International is targeted at 300 million cubic meters this year. The Russian gas giant also discovered a new field, Djel, during exploration work. Russia has been the leading oil and gas investor in Uzbekistan in recent years, and President Vladimir Putin was due to start an official visit to Tashkent on Oct. 18 to mark the start of construction of a Russian-designed nuclear plant. Another important partner for UNG is China National Petroleum Corp. (CNPC), which is involved in several upstream projects. These in- clude a venture — New Silk Road Oil and Gas — to develop the Dengizkul, Khodzhadavlat and Sharki Alat fields, on which the Chinese plan to spend around $178 million over a five-year period. If successful, Sayidov says the project will yield an extra 400 MMcm/ yr of gas production, rising to 1 Bcm/yr from 2020 that will go for export. CNPC plans to invest over $255 mil- lion in the Mingbulak oil field, which Sayidov says is due to produce around 200,000 metric tons (4,000 barrels per day) this year.
Paul Sampson, London