Saudi Arabia Seeks Major Stake in Novatek’s Arctic LNG-2 Project

Saudi Arabia’s Minister of Energy, Khalid Al-Falih, announced that the country’s national oil company Saudi Aramco will seek to acquire a 30 percent stake in Novatek’s $21 bn Arctic LNG-2 project. So far, Novatek has secured financing from its long-time French partner Total, which holds a 10 percent in the new project. The Russian energy company aims to find investors for up to 40 percent of the project while maintaining a 60 percent share.

In light of ongoing Western sanctions Novatek has courted companies from South Korea, China, Japan, as well as the Middle East to secure funding for its next polar project, Arctic LNG-2. It remains unclear how an agreement with Saudi Arabia would affect other potential investors, such as existing partners in the current Yamal LNG project like the Chinese National Petroleum Company, or new partners including the Japan Oil, Gas and Metals National Corporation and the Korea Gas Corporation, with whom Novatek signed Memoranda of Understanding (MoU) earlier in 2018 to cooperate on projects in the Yamal and Gydan peninsulas, including Arctic LNG-2.

Growing partnership with Saudi Arabia

The news comes on the heels of a cooperation agreement signed between Novatek and Saudi Aramco earlier in 2018, which aims to collaborate internationally on natural gas projects, including LNG. At the time Russian Energy Minister Alexander Novak explained that the MoU was the first step while specific details for the Arctic LNG-2 project were being worked on and Novatek’s Chairman of Management Board Leonid Mikhelson noted: "We see a wide array of exciting and mutually beneficial energy opportunities to cooperate with Saudi Arabia."

Russia and Saudi Arabia have continuously strengthened ties in the energy sector as HNN previously reported, especially following the ongoing Western sanctions against the former country’s energy sector. As companies and officials from the U.S. and Europe have boycotted last week’s investment forum in Riyadh, the potential to expand the two countries’ existing cooperation from the oil sector to the natural gas sector took a front a seat.

"It is part of the projects considered under our road map, so if such an agreement is reached at a commercial level between Novatek and Saudi Aramco, of course it will be very positive, it will be the first large deal between a Russian company and Saudi Arabia," explained Novak at the investment forum. Novatek has previously held discussions with officials in Saudi Arabia about building a regasification terminal in Saudi Arabia.

Saudi Arabia’s foray into the Arctic signals an effort by the country to become a larger player in the burgeoning global LNG market. At the country’s investment forum Al-Falih confirmed that Saudi Aramco aims to become a very significant investor in and trader on the global LNG Market. "The Arctic - yes, this is one of the regions with which we can achieve this goal," the minister said.

In an interview with Russian news agency TASS Al-Falih spoke of his country’s interest in being involved in future Russian LNG projects since he attended the opening of Yamal LNG in 2017. "We expressed our interest. Now what we have to do is negotiate terms with Novatek. We hope to become the second largest investor in the project after Novatek. We want not just to enter it, but to enter with a solid share."

Novatek looks East

Arctic LNG-2 represents Novatek’s second and largest LNG project in the region. After Yamal LNG opened in December 2017, the company previously announced that it aims to launch this new project, with a capacity of 19.8 million tons of LNG per year, by 2023.

However, Mark Gyetvay, the company’s Deputy Chairman of the Management Board and Chief Financial Officer, indicated that Novatek may aim to launch the project even earlier. "It is imperative that cost-competitive LNG projects, such as our Arctic LNG-2, get commissioned within the next two years to meet potential supply shortages in the early 2020s," he said in a company call as reported by the Financial Times.

The company aims to benefit from continued growing demand for LNG in Asia and make its Yamal LNG and Arctic LNG-2 projects the cornerstones to compete with the world’s largest producer of LNG, Qatar, by 2030. About 54 percent of Yamal LNG’s output is destined for the Asian markets. It has already surpassed Russian energy giant Gazprom as the country’s largest publicly traded gas company.

For Novatek the fast-growing Asian Pacific markets "are a priority destination for our LNG projects" and Korea is one of the world’s largest importers of LNG, Mikhelson explained.

More LNG for Europe

Besides delivering LNG to long-term project partners in China, Novatek continues to push into the European market. Last week the company announced that it will deliver its product to the port of Zeebrugge in Belgium from where it can be distributed to Germany’s Ruhr region and across Europe. Zeebrugge received the first shipment from Yamal LNG in May 2018.

Novatek and the Belgian company Fluxys, operator of natural gas transmission and storage infrastructure, signed a 20-year contract for LNG transshipment services at Zeebrugge for up to 8 million tons per year.