While the oil and gas world is suffering a setback, Russia’s second-largest natural gas producer NOVATEK reached the milestone of one trillion cubic meters in cumulative natural gas production and it is looking positively ahead.
CEENERGYNEWS spoke with Mark Gyetvay, Chief Financial Officer and Deputy Chairman of the Management Board of NOVATEK, regarding the great achievements of the company and the future of the LNG industry in the region.
A David and Goliath environment
NOVATEK started producing natural gas at its East-Tarkosalinskoye field with the launch of the first gas treatment unit in 1998. Twenty-two years later, it reached one trillion cubic meters in cumulative natural gas production.
“I believe there was always a misunderstanding from many people in the oil and gas industry as to the size and scale of our operations, despite our efforts over the years to highlight this very fact,” says Mr Gyetvay. “When you operate in a market environment with a company like Gazprom as the main producer, it is easy to understand that we operate in a David and Goliath environment, and Gazprom’s production profiles dwarf all other producers globally.”
But, as Mr Gyetvay recalls, the company has steadily invested capital into its upstream production licenses over the years, thus successfully bringing on-stream a series of long-lived reserves that underpin its production profile. Today NOVATEK ranks number three globally in proved gas reserves and is considered one of the top ten producers globally.
“We are very proud of our accomplishments and our ability to successfully monetise our vast hydrocarbon resources in a prudent, low-cost manner,” continues Mr Gyetvay. “With the success of our flagship LNG project, Yamal LNG, we will eventually unlock our tremendous gas resources in the Yamal and Gydan peninsulas, which ensures that NOVATEK will emerge as one of the premier LNG producers globally as well ensure continued growth in our natural gas production for many decades ahead. We are firm believers in the transition of coal to natural gas, and our LNG platform will contribute positively to the reduction of greenhouse gases and the attainment of climate change targets.”
A global company
In 2017 NOVATEK launched its flagship Yamal LNG project which helped the company to move to the next level, becoming a global LNG player. Global is also the word the best describes NOVATEK’s current operations. Early in September, the company announced that a final investment decision (FID) for the Arctic LNG 2 project was approved, which envisages constructing three LNG trains at 6.6 million tons per annum (mtpa) each, using gravity-based structure (GBS) platforms.
Arctic LNG 2 is our next large-scale LNG project that we are currently working on and when launched in 2023, 2024 and 2026, will produce 19.8 mtpa of LNG.
“We have already commenced work on this project by pouring concrete slabs for the first GBS unit last year, and we will shortly begin work on the second GBS later this year,” Mr Gyetvay explains.
NOVATEK completed the project structure which now includes the company at 60 per cent, French integrated oil and gas company Total at 10 per cent, the China National Petroleum Corporation (CNPC) and the China National Offshore Oil Corporation (CNOOC) at 10 per cent each and a consortium of Japan corporate groups Mitsui and JOGMEC at the remaining 10 per cent.
But NOVATEK is also moving towards other markets, with LNG downstream projects in both Poland and German through its wholly-owned subsidiary, NOVATEK Green Energy.
“Last April we successfully launched our medium-scale LNG project called Cyrogas-Vysotsk, where we own a 51 per cent interest in this project producing 660 thousand tons of LNG per annum,” says Mr Gyetvay. “The Cryogas-Vysotsk project aims to target the Baltic region and parts of northern Europe with LNG bunker fuels with the passage of IMO 2020 [the new International Maritime Organization Low Sulphur Regulation], a reduction in sulphur from 3.5 per cent to 0.5 per cent, as well as trucks and consumers not connected to the pipeline grid.”
As Mr Gyetvay pointed out, NOVATEK has also launched four LNG refuelling stations, two in Germany and two in Poland, and it is now looking at expanding its presence in these growing markets for modal transport fuels.
“We will eventually link all of this activity with the construction of an LNG terminal in the port city of Rostock, in Germany, as well as potentially expand the LNG capacity of our Cryogas-Vysotsk facility if demand warrants this expansion,” he adds. “We are optimistic that LNG will play a larger role in shipping and long-haul trucks, so we will watch closely the development of these markets.”
The world will still need LNG
While LMG might play a larger role in the short- and mid-term, especially as a bridge to renewable energy sources, one can argue that Central and Eastern Europe has become a consumer of gas rather than a producer or exporter. Therefore the LNG future might be limited within the region.
“Central Europe has traditionally been a coal consumer and an importer of natural gas via pipeline from Russia,” admits Mr Gyetvay.
But he is optimistic. “Many countries in the region have decided to expand their supply sources and have built regasification capacity ensuring that LNG will take an increasing share of the market, but I still believe pipeline gas will be the dominant source of energy in the region,” he continues. “We are at the beginning stages of transitioning economies from coal to natural gas, and this trend will be important not only for Central Europe but for many of the largest consuming regions in the world like China and India.”
Mr Gyetvay reminds that Poland still uses a significant proportion of coal in its primary energy source, as the coal industry has strong lobbying power and influence inside the government, but societal changes and the push towards greener energy sources bodes well for natural gas.
We look forward to playing an increasing role in providing cleaner-burning natural gas to Central Europe and expanding our network of refuelling stations to facilitate this transition from coal to natural gas and establish a good market presence in the region.
In the future, NOVATEK will be investing capital to optimise its processing capabilities, ensuring sufficient natural gas for the Russian domestic market and at the same time expanding its LNG platform and building transhipment facilities to facilitate its LNG commercial operations.
“Specifically, we have stated that we will increase our LNG production from approximately 57 mtpa to 70 mtpa by 2030 by launching Arctic LNG 2 beginning in 2023, Obskiy LNG, and the Arctic LNG 1 project post-2025,” he reveals. “At the same time, we are building transhipment complexes in Murmansk to serve westbound shipments for Europe and Kamchatka to serve eastbound shipments to the Asian Pacific markets. These two transhipment points will also serve as future reference prices to their respective regions as some of the reporting agencies have begun quoting LNG prices from these points.”
When it comes to the domestic market, NOVATEK is launching its next big productive area with the launch of the North-Russkoye cluster, comprising of four licenses areas.
“This will be our first major new field launch targeting the domestic market to support and maintain our production levels of roughly 65 billion cubic meters per annum. We are also investing capital in expanding our processing capabilities at our Purovsky Processing Plant and our Ust-Luga Fractionation Complex,” he concludes.