How Novatek is looking to lead a Russian gas revival

OPINION: Russia’s Novatek hosted leading members of parliament at its specialised construction yard near the northern village of Belokamenka this week, stepping up its drive to capitalise on Gazprom’s misfortune and opportunities opened by the war in Ukraine.

The high-profile meeting marks the end of a period of stagnation for Novatek, during which Russia’s largest independent gas producer has been adjusting to international sanctions introduced in response to the invasion of Ukraine early last year.

The company has been searching Russia to find alternative sources for the highly specialised equipment required for its liquefied natural gas projects that had been supplied by Western contractors and which now fall foul of the sanctions.

Russian LNG exports to the European Union are not included in the sanctions and with state-controlled Gazprom’s pipeline gas exports to the EU at 25% of pre-war levels, Novatek believes it is now in a good position to increase its market share, despite calls in Europe to avoid any deals for Russian LNG while the war continues.

As part of its push for a greater market share, Novatek plans to build a new LNG export plant near the Barents Sea port of Murmansk.

And in a stark deviation from its strategy for previous LNG projects, which take gas from remote, Novatek-operated fields in West Siberia, the proposed 20.4 million tonnes per annum capacity Murmansk facility will be fed by gas from Gazprom-operated fields.

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But that is not all. In a further twist, Novatek wants three things from the Russian authorities to help it achieve its aims.

Firstly, Novatek wants legislation amended to end the monopoly held by Gazprom and its subsidiaries over Russian gas exports.

This would let Novatek avoid having to channel exports from Murmansk LNG — and possibly other similar projects — via Gazprom.

Secondly, Novatek wants unhindered access to natural gas produced by Gazprom and transported through Russia’s pipeline network, which is also operated by the state-controlled company.

Murmansk LNG could take up to 30 billion cubic metres of the 100 Bcm per annum spare capacity that Gazprom is understood to have lost following last year’s decision to halt deliveries to the EU in response to the bloc’s support of Ukraine.

However, Gazprom has not indicated whether it is prepared to sell such a large volume of its own gas to Novatek at a price that will make the Murmansk LNG scheme economically attractive.

Thirdly, Novatek wants preferential tax rates and tax exemptions for Murmansk LNG, and to have an abundant supply of electric power at a significant bulk discount for the project.

The company expects Murmansk LNG will require about 1 gigawatt of power from the Kola nuclear power plant about 200 kilometres away, which is operated by state-run nuclear conglomerate Rosatom.

The global gas market has been changing rapidly since Russia’s invasion of Ukraine, with Europe striving to reduce its dependence on Russian supplies and gas growing in importance as the fuel of choice to bolster nations’ energy security and energy-transition efforts.

Russia, meanwhile, is defiantly turning to alternative markets and pressing ahead with plans to expand its export capacity, whether via pipeline or LNG.

Novatek clearly sees itself as a standard-bearer for Russia’s gas sector, and is eyeing a chance to reap the rewards of Gazprom’s waning influence and the country’s increasing isolation.

(This is an Upstream opinion article.)