After a year of securing deals, finalising details and even projecting way beyond the current, Novatek’s Arctic LNG 2 was been given its Final Investment Decision (FID), paving its way for a 2023 start. Led by Russia’s largest independent gas producer, the 19.8 million ton per annum project is also joined by Total, CNPC, CNOOC and the Japan Arctic LNG consortium (consisting of Mitsui & Co and JOGMEC).
The make-up of the project stakeholders is telling. There is Novatek, which aims to catch up with Gazprom as Russia’s largest gas player. Then there is Total, whose savvy deals have propelled it to become the second largest private gas player (behind Shell) through a diversified portfolio. Japan – currently the world’s largest LNG importer – is well represented, while the fast-growing demand market of China is in there as well. Each of the minority players owns a 10% stake but Total also has a 19.4% stake in Novatek, bringing its total economic interest to 21.6%.
The geography of the project is interesting as well. Centred on the Trekhbugornly and Gydanskiy fields, the terminal at Utrenniy and a large-scale liquefaction plant in the remote Gydan Peninsula, passage from this part of Russia’s Arctic is difficult. Which is why Novatek is also partnering with Sovcomflot to build a fleet of 17 icebreaker-class LNG carriers to ferry the super-chilled liquid through the Arctic to Northeast Asia. That’s the Northern Sea Route, the closest direct route to Asia available and it might even get easier. Climate patterns have shifted the Arctic’s ice floes, with new shipping channels opening up from thawing ice in the summer. The journey rivals delivery times from Qatar to Tokyo, or Australia to Shanghai – which explains the high interest from Japanese and Chinese parties. For Total, which has a global presence, Arctic LNG 2 will also be able to deliver cargoes to Europe via transhipment terminals in the Murmansk region.
It also explains why Novatek is already thinking beyond this. Arctic LNG 2 will consist of 3 phases. Train 1 is scheduled for 2023, while Train 2 and Train 3 planned for 2024 and 2026. But Novatek has already made overtures to expand its assets in the Gydan – part of West Siberia’s Yamal-Nenets region. Novatek’s ambitions call for up to 140 mtpa of LNG production in Gydan and Yamal, from its current 16.5 mtpa Yamal LNG and the 19.8 mtpa Arctic LNG 2, though Gazprom has pushed back on Novatek’s lobbying of the Russian government on the issue. However, plans have already been made for at least one more LNG project – oddly titled Arctic LNG 1 – that would focus on the Soletsko-Khanaveyskoye field in the Kara Sea, which has an estimated 2.18 bcm of gas in place.
The net result of this is that Russia will become a more diversified gas player. Besides the Sakhalin II and Yamal LNG projects, Russia primarily sells its gas by pipeline to Europe. But with resistance there increasing – see the furore over the Nord Stream 2 pipeline – Russia needs more options. Geography and weather have always presented challenges to export Siberian gas to Asia and the rest of the world, but Arctic LNG 2 offers a very promising glimpse of a possibly profitable future.
Arctic LNG 2:
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In its latest Short-Term Energy Outlook (STEO), released on January 14, the U.S. Energy Information Administration (EIA) forecasts year-over-year decreases in energy-related carbon dioxide (CO2) emissions through 2021. After decreasing by 2.1% in 2019, energy-related CO2 emissions will decrease by 2.0% in 2020 and again by 1.5% in 2021 for a third consecutive year of declines.
These declines come after an increase in 2018 when weather-related factors caused energy-related CO2 emissions to rise by 2.9%. If this forecast holds, energy-related CO2 emissions will have declined in 7 of the 10 years from 2012 to 2021. With the forecast declines, the 2021 level of fewer than 5 billion metric tons would be the first time emissions have been at that level since 1991.
After a slight decline in 2019, EIA expects petroleum-related CO2 emissions to be flat in 2020 and decline slightly in 2021. The transportation sector uses more than two-thirds of total U.S. petroleum consumption. Vehicle miles traveled (VMT) grow nearly 1% annually during the forecast period. In the short term, increases in VMT are largely offset by increases in vehicle efficiency.
Winter temperatures in New England, which were colder than normal in 2019, led to increased petroleum consumption for heating. New England uses more petroleum as a heating fuel than other parts of the United States. EIA expects winter temperatures will revert to normal, contributing to a flattening in overall petroleum demand.
Natural gas-related CO2 increased by 4.2% in 2019, and EIA expects that it will rise by 1.4% in 2020. However, EIA expects a 1.7% decline in natural gas-related CO2 in 2021 because of warmer winter weather and less demand for natural gas for heating.
Changes in the relative prices of coal and natural gas can cause fuel switching in the electric power sector. Small price changes can yield relatively large shifts in generation shares between coal and natural gas. EIA expects coal-related CO2 will decline by 10.8% in 2020 after declining by 12.7% in 2019 because of low natural gas prices. EIA expects the rate of coal-related CO2 to decline to be less in 2021 at 2.7%.
The declines in CO2 emissions are driven by two factors that continue from recent historical trends. EIA expects that less carbon-intensive and more efficient natural gas-fired generation will replace coal-fired generation and that generation from renewable energy—especially wind and solar—will increase.
As total generation declines during the forecast period, increases in renewable generation decrease the share of fossil-fueled generation. EIA estimates that coal and natural gas electric generation combined, which had a 63% share of generation in 2018, fell to 62% in 2019 and will drop to 59% in 2020 and 58% in 2021.
Coal-fired generation alone has fallen from 28% in 2018 to 24% in 2019 and will fall further to 21% in 2020 and 2021. The natural gas-fired generation share rises from 37% in 2019 to 38% in 2020, but it declines to 37% in 2021. In general, when the share of natural gas increases relative to coal, the carbon intensity of the electricity supply decreases. Increasing the share of renewable generation further decreases the carbon intensity.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020
Note: CO2 is carbon dioxide.
GEO ExPro Vol. 16, No. 6 was published on 9th December 2019 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.
This issue focusses on oil and gas exploration in frontier regions within Europe, with stories and articles discussing new modelling and mapping technologies available to the industry. This issue also presents several articles discussing the discipline of geochemistry and how it can be used to further enhance hydrocarbon exploration.
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Headline crude prices for the week beginning 13 January 2020 – Brent: US$64/b; WTI: US$59/b
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