LNG: local fuel for global needs

Extraction and manufacture of Liquefied Natural Gas (LNG) in the Arctic provides by far the cleanest form of energy available from fossil fuels. The LNG market is diverse and dynamic worldwide, so it would be quite reasonable to assume that LNG will be widely used in the region. 

Since 2000, LNG market volume has more than doubled, primarily due to growing demand in Asia. Today, LNG accounts for 40% of the world’s gas trade, and by 2040 its share will increase to 60%. China was the biggest LNG importer in 2018, and global demand was projected to grow by 20% by the end of 2020.[148] In 2019 the LNG market reached its peak, hitting the 354.73 million mt, which was an increase of 13% from 2018 and the 6th year of consecutive growth.[149] The experts predict a sharp market decline due to the supply and demand cuts amid post- COVID-19 crisis.[150]

The Arctic is a rapidly developing region with world-class exploitable resources, which are especially important to Russia. So the transition to the LNG is crucial for the Arctic’s future development. The volume of traffic in materials, equipment and finished products is growing. This leads to rising fuel consumption and a negative impact on the unique Arctic environment, increasing the risks of fuel spills, and escalating economic and political tensions. 

The development of technologies of LNG transportation, storage and regasification both for onshore and offshore projects, will help reduce costs for energy transition, and replace traditional fuels with more sustainable LNG. LNG is a local resource for the Arctic. An important advantage of this type of fuel is its price competitiveness. As it is produced in the Arctic, transport costs for fuel delivery are low. According to expert estimates, several LNG plants have clear advantages for onshore consumers in the Arctic zone. Potentially, the volume of LNG consumption for energy supply only for Russian Arctic projects may exceed 581 thousand tons of LNG.[151]

The important advantages of LNG are its long- term availability and its compliance with the IMO environmental requirements and possible future restrictions. The main environmental advantage of LNG is the complete elimination of risk of accidental oil spills. The main environmental advantage of LNG is the complete elimination of the risk of accidental oil spills. A significant benefit is the low cost of oil spill response infrastructure.[152]

The development of LNG production is closely related to the development of LNG infrastructure and shipping: plant, infrastructure facilities that provide LNG export, LNG-tankers and icebreakers, port infrastructure, etc.

In recent years, international shipping requirements have become stricter, especially for Arctic waters. Usually, LNG projects use LNG carriers that consume natural gas as fuel. LNG tankers are the least affected by international environmental standards, and it is highly likely they will meet all the new possible restriction on the 2050 horizon. By using LNG, greenhouse gas emissions are reduced by up to 20%, sulphur oxide emissions by 100%, nitrogen oxides emissions by more than 90%, soot and particulate matter up to 98% compared to petroleum fuels.[153]


PAO Novatek is the largest independent (public) energy company in Russia. The company is engaged in exploration, production, processing and marketing of natural gas and liquid hydrocarbons and has more than twenty years of experience in the Russian oil and gas industry. Novatek supplies 20% of Russian gas demand. The company Novafininvest (name until 2003) was established in 1994 in the Yamalo-Nenets Autonomous Okrug focusing on oil and gas fields development – East-Tarkosalinskoye, Khancheyskoye and Yurkharovskoye fields – and made significant investments in field development and surface facilities construction. Trial operation of the East-Tarkosalinskoye oil field commenced in 1996 and commercial production of natural gas started in 1998. Gas marketing started in 2002 with first sales to end-customers. Novatek completed the consolidation of the company’s main assets in 2004 and disposed of its non-core businesses in 2005.[154] Novatek continues to grow. Its shares are traded on the London and Moscow stock exchanges. The major shareholders of Novatek are:

  • Group of companies owned by Leonid Mikhelson (24.8% of capital)
  • Group of companies owned by Gennady Timchenko (23.5% of capital)
  • Total (19.4% of capital)
  • Gazprom (10% of capital)[155]

The Company’s production volumes and asset portfolio grew rapidly in recent years. Novatek acquired stakes in SeverEnergia, Nortgas and Yamal LNG, as well as new licenses in prospecting areas in the Gydan Peninsula and the Gulf of Ob. Yamal LNG has started producing LNG at the first LNG train in 2017. The second LNG train was launched in August 2018. This means that Novatek has entered the global gas market and is becoming a global company.[156]



Yamal LNG is an integrated project for LNG production, liquefaction, supply and export of natural gas. The project comprises the construction of an LNG plant on the resource base of the Yuzhno-Tambeyskoye field (Yamal Peninsula), and transport infrastructure – a seaport and airport Sabetta.

The LNG plant was built directly at the field on the shore of Ob River Bay. The plant was expected to be commissioned in 3 phases in 2017, 2018 and 2019, respectively, with the capacity of each stage of 5.5 mn tons. The total capacity is 16.5 mn tons of LNG and 1 mn tons of gas condensate per year.[157] A fourth production line with a capacity of 0.9 mn tons LNG per year will be built with special liquefaction technology called the “Arctic Cascade” which was patented by Novatek in 2018.[158] This ensures maximum energy efficiency by using the Arctic climate. Construction is expected to complete and commissioning to start in 2020. Experts say the target cost of construction is $450-500 per ton, which is half the cost of the first three lines.[159]

The multifunctional port of Sabetta was built as part of the Yamal LNG Project on the principles of public-private partnership. To receive materials and technological modules for the plant’s construction, cargo terminals were developed first. The port is now operating year-round. The terminals in Sabetta can now load LNG only to large gas carriers, but after four LNG- powered icebreakers have been commissioned, bunkering infrastructure for ships will be created. The terminal in Murmansk also would be able to ship LNG from large Arctic-class LNG carriers to conventional LNG carriers, but for now it is a distribution hub for the needs of the Murmansk region and bunkering LNG ships.

For the Yamal LNG project, 15 special ice-class Arc7 tankers were built. This allows year-round navigation without icebreaker assistance in the western direction and, during the summer, in the eastern direction via the Northern Sea Route. As for now, 8 tankers of the Arc7-type are already in operation. The others are expected to be commissioned within a year.

New small-scale LNG plants could emerge in the Russian Arctic: in Arkhangelsk, Chukotka, etc. They might help to increase the reliability of LNG supply to consumers and thereby contribute to the development of infrastructure in the region.

An international airport was built near the LNG plant and the Sabetta village, to ensure reliable air connections. Sabetta village, located on the eastern coast of the Yamal Peninsula is the base for the Yamal LNG Project. All necessary infrastructure has been built at Sabetta for the comfortable residence of construction workers. The auxiliary facilities of the living complex are being built: a fuel and lubricant storage depot, boiler facilities, a power supply complex, dining halls, medical centers, laundry facilities, saunas, gymnasium, administrative buildings, hotel, fire station, sewage and water treatment facilities, heated garage, and storage facilities for food supplies.[160]

The Project Operator is Yamal LNG, a joint venture of Novatek (50.1%), TOTAL (20%), China National Petroleum Corporation (20%) and the Silk Road Fund (9.9%).[161]

The huge ecological footprint, including stream bed degradation, in the Ob River Bay during the port’s construction provoked harsh criticism and concerns among NGOs and the local population, as they damaged the livelihood of the indigenous people and the population of rare river species of Yamalo-Nenets Autonomous region. The company assured them that a scientifically- grounded decision was made and, according to the experts, the impact has been minimized. Studies show that the plankton population will be restored within a year, and fish stocks in 7-10 years. It will require regular environmental monitoring. During construction of the port 35 million rubles was spent on ecological monitoring of the area. The company has allocated 526 million rubles for compensation.[162]


Arctic LNG 2 is Novatek's second large-scale LNG plant in the Russian Arctic. The resource base for the project is the Utrennoye field located on the Gydan Peninsula. The plant's capacity is 19.8 million tons of LNG per year. The capacity of the LNG storage is 213 thousand cubic meters per each. One of the main advantages of the project is its lower cost of LNG per ton due the low cost of gas extraction, the possibility of using built infrastructure, and a high share of localization.[163]

Arctic LNG 2 shareholders:[164]

  • Novatek - 60%
  • Total - 10% (+ 5% option)
  • Mitsui and Jogmec - 10%
  • CNODC (CNPC’s subsidiary) – 10% CNOOC - 10%

There are not enough ships to meet transport needs in the Arctic. To ensure the export of products manufactured in the region, a significant number of new vessels is required. However, for year-round navigation in the Arctic, vessels must be at least of Arc4 ice class.[165]

Probably Novatek's aspirations for LNG production and the experience gained from operating Yamalmax LNG carriers will require new solutions and business practices in the future.

Another exploitation giant, Norilsk Nickel, has been providing a significant part of the cargo traffic in the Arctic for more than half a century. The company has extensive experience in shuttle tanker operations and has its own fleet, comprised of Arc7 class containerships. But the company uses oil as a marine fuel, which puts Norilsk Nickel's fleet into a risk zone with tightening IMO requirements.[166]

Recently, the number of gas carriers for the Arctic LNG-2 project was increased from 15 to 17.[167] But this July, the Russian companies Sovcomflot, Zvezda and Novatek expressed the intention to sign contracts for another 10 LNG carriers for the Arctic LNG 2 project.[168]

FSUE Hydrographic Enterprise, a Rosatom subsidiary, and the industrial contractor Mezhregiontruboprovodstroy, signed a contract for the construction of a federal terminal at the Utrenny field for Novatek's Arctic LNG 2 project. The cost of the project is 95.7 billion rubles.[169]


The company's plant produces wet gas - a mixture of natural gas and gas condensate. After separation and de-ethanization, the unstable gas condensate is supplied to the Purovsky plant which is located near the East-Tarkosalinsky field. The Purovsky plant was launched in 2005. The main products are stable gas condensate (SGC) and a range of light hydrocarbons (NGL). During the 2005-2017 period, the Plant processed 65 million tons of gas condensate. The main volume of the product is supplied from the Purovsky Plant by rail to Ust-Luga for further processing or export.[170]


Arctic LNG 3 holds a license for the Severo- Obskiy field. According to Novatek's strategy, it could be the next liquefaction project after Arctic LNG 2.

In January 2019, the Obsky LNG LLC was registered in the village of Yar-Sale (Yamalo- Nenets Autonomous Okrug) with initial capital of 1 million rubles. The company was created for future investment projects based on the existing resource base in the region. The main activities are the production of gas and condensate, oil and associated petroleum gas, trade in solid, liquid and gaseous fuels and similar products, pipeline transport, and geological exploration. The investment decision will be made in 2020. It will be a small plant with a capacity of 4.8 mn tons per year of LNG based on Russian equipment and technologies, located in Sabetta. The cost of the project will be about 5 US$ bn. The launch of the first line is planned for 2024-2025. Novatek is unlikely to involve foreign investors in this project.

In 2018 Novatek, the Ministry for the Development of the Far East and the Government of Kamchatka signed a letter of intent[171] about a project for an offshore LNG trans-shipment complex on the Kamchatka Peninsula in the Mokhovaya Bay in Avacha Gulf. It is supposed to be a Russian hub for LNG delivery to the Asia-Pacific region. The complex will optimize transport logistics and use the existing Arctic tanker fleet, making LNG supplies from Yamal and Gydan more efficient helping the development of the Northern Sea Route. The marine LNG trans-shipment complex will serve to create conditions for the gasification of the Kamchatka Territories. Novatek will play a major part not only in the transformation of the NSR, but in the also development of the Russian Far East and engagement with the Asian market. The trans-shipment terminal will create a new independent center for LNG pricing in the Asia- Pacific region.[172]

Successful international projects, new deals, subsidies and tax remissions, though, have provoked sharp comment and criticism. There are allegations that Novatek was given unreasonable benefits and subsidies, receiving money from the state budget for infrastructure.[173] At the same time, these steps are at the heart of the renewed Russian Arctic strategy[174] which.

includes new tax regulation for the Arctic zone. Tensions are running high as the market gets more complicated. The state giant Gazprom is experiencing difficulties in the European market. The future of Nord Stream 2 is still unclear, though Novatek increased its exports of gas to the EU gas in 2019. Novatek sent 80% of the gas produced in the Arctic to European hubs.[175]


The company has been hit by lower LNG prices. The company's revenue from the sale of hydrocarbons fell by 120 billion rubles during the first 6 months of 2020, compared to the same period in 2019. The net profit is one thirtieth of that before the pandemic, falling from 460 billion rubles to 15 billion.[176]

But this has not changed Novatek’s plans for key projects in the Arctic.

The company has confirmed the planned dates for commissioning its projects in the Arctic: the Arctic LNG 2 plant on the Gydan Peninsula and LNG trans-shipment terminals in Kamchatka and Murmansk. The only possible changes are in the operation of the Obsky LNG project.[177]