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Novatek sanctions $21.3bn Arctic LNG 2 scheme

Operator says first LNG cargo from Russian development is due in 2023

Russian independent Novatek and its partners in Arctic LNG 2 have taken the final investment decision on the large liquefied natural gas scheme on the Gydan peninsula.

Capital expenditure to launch the full three trains totalling 19.8 million tonnes per annum is estimated at $21.3 billion in Russian roubles equivalent, operator Novatek said.

The first of the three trains - each with equal capacity - is set to start up in 2023, with the second a year later and the third in 2026.

"Arctic LNG 2 employs an innovative concept using gravity-based structures (GBS) and provides for localising the majority of equipment manufacturing and materials fabrication in Russia," Novatek said.

"The GBS construction, assembly and installation of LNG modules will be performed at Novatek-Murmansk’s LNG Construction Center located near Belokamenka in the Murmansk region."

Chairman Leonid Mikhelson said: "Today, we have taken another step forward in our goal to become one of the largest LNG producers in the world by approving the final investment decision on our second large-scale LNG project." The first was Yamal LNG, which is already upo and running.

"We are confident that the accumulated construction experience, state-of-the-art technologies, proven logistics solutions and partnerships with best-in-class international companies will ensure the effective implementation of our new LNG project.

"Our long-term strategy is to develop our vast low-cost hydrocarbon resources on the Yamal and Gydan peninsulas, as well as to maximize our cost competitiveness across LNG markets."

Novatek has a 60% stake in Arctic LNG 2, with French supermajor holding a direct 10% stake but also an 11.6% indirect stake through its 19.4% holding in Novatek itself.

China National Petroleum Corporation and China National Offshore Oil Corporation each hold 10%, with a consortium between Japanese players Mitsui and Jogmec, Japan Arctic LNG, on 10%.

“Arctic LNG 2 will leverage the success of the Yamal LNG project and will deliver competitive LNG to the markets in four years’ time," said Patrick Pouyanne, chief executive of Total.

Total did not refer to the capital budget, but said the project has "very low upstream costs" from the development of the giant resources from the Utrenneye onshore gas and condensate field.

Wood Mackenzie’s senior analyst Nikolai Novikov said: “Novatek keeps delivering on its promises and is on schedule with commissioning in 2023.

“This FID brings Novatek closer to its long-term strategy of maximising cost competitiveness across LNG markets and becoming a global LNG player.”

He added: “Novatek played the safety card by ordering the topside modules for Train 1 at Chinese yards. The next steps for Novatek will be contracting the remaining equipment, finalising the financing structure and deciding if it wants to attract a last partner in the project.”

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