News review of the events on the NSR
#1 July 2019

1. NOVATEK announced early start of its shipyard near Murmansk

In the coming months, Novatek-Murmansk will begin to cast the first platform at the facilities of the Center for construction of large-capacity offshore structures.

Its construction is completed in Belokamenka village of Murmansk region, on the shore of the non-freezing Kola Bay of the Barents Sea. The center will be engaged in the construction of LNG lines on gravitational-type reinforced concrete foundations for the Arctic LNG-2 project and future Novatek LNG plants. “This is one of the most ambitious projects that is being implemented all over the world” said Leonid Mikhelson, CEO of NOVATEK, during a visit to the Center for construction of large-capacity offshore structures.

“The operation of the Center is designed “for entire life”. That is, the two docks that we are building here will be loaded until the oil and gas runs out in the Arctic area. For example, we conducted large geological exploration work in the Ob Bay, and the extraction can be conducted there only from such platforms,” noted Mr. Mikhelson.

The launch of the Center is divided into two phases: construction of the first gravity platform and construction of individual modules. The construction of the platform will begin in the third quarter of 2019, and the modules for it in a year.

Arctic LNG-2 is the second project of NOVATEK associated with the production of LNG, after Yamal LNG project. It will be implemented on the basis of Utrennee Field in the Yamal. Within the project, it is planned to build three technological lines with a capacity of 6.6 million tons each (19.8 million tons of LNG per year). The launch date for the first line is 2023, followed by the launch of the other lines in 2024 and 2025.

2. Ob Bay is main driver of Russian Arctic projects

Since the beginning of the year, 110 gas carriers and 50-60 tankers have entered the Ob Bay, where gas and oil are being transshipped. Icebreakers of Atomflot provided support in Arctic ice. Until the beginning of 2020, the company plans to provide up to 800 ship calls to the Ob Bay. According to Mustafa Kashka, General Director of Atomflot, this indicator suggests that oil and gas transshipment in the Ob Bay is the driver of all Russian Arctic projects.

3. Contracts for construction of 2 nuclear icebreakers will be concluded in August

Russian company Atomflot plans to sign in August 2019 contracts for the construction of the 4th and 5th serial nuclear icebreakers of the project 22220. Now three nuclear universal icebreakers are being built in St. Petersburg at the Baltic Shipyard, and after signing new contracts, keel laying of two more ships will begin. Signing expected by late August.

4. Russian nuclear icebreakers began to work twice

Over the past nine years, the intensity of the work of Russian nuclear icebreakers in the Arctic has almost doubled. “In 2010, the average operating time of an icebreaker was 156 days, now we have reached an indicator of about 270 days,” said Mustafa Kashka, Atomflot’s General director, at the meeting of the commission of the State Duma of Russia on legal support for the development of defense industry companies which took place in July in Murmansk. In other words, each Atomflot icebreaker has been operating in the Arctic for more than 9 months. This fact indicates a steady increase in the intensity of traffic on the Northern Sea Route. At the moment, there are eight icebreakers operating in its waters. Four are nuclear – “50 let Pobedy”, “Yamal”, “Taimyr”, “Vaygach”, and they belong to Rosatomflot. Four more, diesel-electric icebreakers, “Admiral Makarov”, “Krasin”, “Kaptain Khlebnikov” and “Kaptain Dranitsyn”, are under the jurisdiction of the Agency for Marine and River Transport.

5. NOVATEK released a plan to attract investors to the Arctic LNG project

NOVATEK has fully formed a pool of partners for the Arctic LNG project. A consortium of Japanese state corporations JOGMEC and Mitsui bought 10% in the project. The total amount of the transaction may be $ 3.4 billion. Now NOVATEK can proceed to making a final investment decision on Arctic LNG, which is scheduled for the third quarter of 2019.

The consortium of Japanese state corporations JOGMEC and Mitsui in this transaction represents Japan Arctic LNG B.V. registered in the Netherlands. According to the JOGMEC report, this state structure will have the main share of economic participation (75%), while Mitsui will have more than half of the voting shares.

Companies do not disclose the amount of the transaction. The head of NOVATEK, Leonid Mikhelson, said that the deal would be about the same as with other partners – French Total and Chinese CNPC and CNOOC, each of them acquired 10% in Arctic LNG.

The JOGMEC report states that the corporation will provide a capital contribution to Japan Arctic LNG B.V. at about 290 billion yen (about $ 2.62 billion), and also gives a loan guarantee of another $ 0.42 billion. Based on the size of the JOGMEC share, the size of the transaction can be $ 3.4 billion.

Japanese investors are necessary, firstly, to access the world’s largest Japanese LNG market, and secondly, as some protection against possible US sanctions.

The fact is that almost all risks are assumed by the Japanese state: it gives most of the money through JOGMEC, and Mitsui’s investments will be insured with the export-import bank NEXI.

Now NOVATEK can make the final investment decision on Arctic LNG, since the initial plan to attract partners has been completed. Therefore, the question of whether the project will be implemented is removed. The new question is how far NOVATEK can meet the stated launch dates and the volume of capital expenditures. As is known, Arctic LNG with a capacity of 19.8 million tons per year is planned to be launched in 2023-2025.

6. Russian port Dikson: international status and transshipment of oil and coal

The Russian government allowed foreign ships to call at the Russian port of Dikson in the Arctic and supplemented the territorial planning scheme with the construction of terminals for the shipment of oil and coal. The order provides for the construction of a coal terminal for the export of coal from a deposit on a section of the River Lemberova, a terminal for loading of oil produced at the Payaykhskoe and Severo-Payayyakhskoe deposits and a terminal for transshipping of coal from the Syradasayskoe deposit.

It is explained that the assignment of international status to Dikson port and the creation of new transshipment capacities will allow the use of ships under foreign flags for the transportation of coal and oil and thus increase the cargo traffic along the Northern Sea Route.

7. Government approved construction of LNG terminal “Novatek” in Belokamenka

Prime Minister Dmitry Medvedev approved changes to the territorial planning scheme of the Russian Federation, including the construction of the Novatek offshore LNG transshipment complex in the Murmansk region with a capacity of more than 20 million tons per year.

NOVATEK plans to build two terminals – in Murmansk and on Kamchatka, in order to reduce transport costs from its LNG projects, in particular from the already operating Yamal LNG and the planned Arctic LNG – 2. Tankers of high ice class will deliver gas to the terminals along the Northern Sea Route, and then it will be loaded onto ordinary gas carriers.

Novatek and Rosmorrechflot plan to obtain a permit for the construction of a complex in Murmansk in the second quarter of 2020, the construction of the object is scheduled for 2020-2023.

In December, at a meeting in Sabetta, Russian Transport Minister Yevgeny Ditrikh asked Prime Minister Dmitry Medvedev to instruct the Finance Ministry to provide funding sources for the construction of offshore LNG transshipping facilities in Murmansk. According to the minister, the construction of such a complex in the Murmansk region is estimated at 70.1 billion rubles, with a capacity of 20.9 million tons per year.

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