Novatek Adds Cheaper Capacity to Yamal LNG

Russia's Yamal LNG export project will have a fourth train, bringing its capacity from 16.5mn mt/yr up to 17.5mn mt/yr, but despite the small size, it will lower the overall capital cost of the project by between 4% and 5%, CEO Leonid Mikhelson said October 17. 

It will use Novatek's technology, but it mirrors projects elsewhere, such as in the US, where operators are looking at ways to cut costs in order to make their LNG as competitively priced as possible in a world that has other fuels to choose from. Small-scale plants are seen as a way of cutting costs per metric ton of LNG output/year.

Mikhelson, speaking to journalists at Russian news agency Interfax headquarters, said that his project would deliver LNG more cheaply anywhere than US projects, owing to the very low feedstock price. US projects are based on capacity deals, where the buyer has to not only buy more expensive Henry Hub gas than the vast reserves available to Yamal LNG; but also has to pay a liquefaction fee to the plant operator. Another cost advantage attributable to Yamal LNG derives from its location in the mostly frozen far north of Russia, whereas those in US Gulf Coast have to contend with ambient heat that verges on tropical.

Yamal LNG output is 95% sold, Mikhelson said, excluding the new fourth train's output, and added that even with the most pessimistic outlook for oil, the plant showed good economics. However, if the company decides to build the Arctic LNG 2, as the successor to Yamal LNG is known, it will be working on different contract terms from those signed when it took the final investment decision on Yamal LNG. The new terms will offer more flexibility including seasonality, as well as a different price formation, he said.

The first cargoes will leave this year, he said, declining to give a more precise date. Despite sanctions from the US and EU which were imposed on Novatek in 2014, he said the project financing was arranged below the budget and construction is proceeding according to the schedule set when the final investment decision was taken in 2013. 

William Powell