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Arctic LNG 2 partners conclude 20-year LNG purchase deals: Novatek

Highlights

All equity holders to take LNG from new facility

Partners are Total, CNPC, CNOOC, Japanese consortium

First train at 19.8 million mt/year plant to start in 2023

The partners in the 19.8 million mt/year Arctic LNG 2 facility currently under construction in northern Russia have all concluded 20-year deals to take LNG from the plant, operator Novatek said April 28.

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The sales agreements cover total LNG production from the plant, which is expected to begin operations at its first 6.6 million mt/year train in 2023.

"The LNG offtake volumes are set in proportion to the respective participants' ownership stakes in the project," Novatek said in a statement.

Novatek has a 60% stake in Arctic LNG 2, with the remaining shareholders comprising France's Total (10%), China's CNPC (10%), China's CNOOC (10%) and a consortium of Japan's Mitsui and Jogmec -- called Japan Arctic LNG -- with the final 10% stake.

That implies supply deals for close to 2 million mt/year for each of the 10% shareholders.

FOB basis

The offtake has been agreed on a FOB basis at two transshipment terminals currently under development -- at Murmansk for westward shipping from the facility and at Kamchatka for east-bound exports.

"The long-term offtake agreements between Arctic LNG 2 and its participants ensure the future revenue stream from LNG sales and de-risks the project," Novatek CEO Leonid Mikhelson said.

"This represents one of the most important milestones in attracting the project's external financing that will be completed in 2021," Mikhelson said

Novatek CFO Mark Gyetvay already signaled in October last year that the Arctic LNG 2 project had been de-risked from a sales perspective as the partners had provisionally agreed to purchase all the volumes.

Arctic LNG 2 is Novatek's second major LNG export facility, with the second and third trains expected to come online in 2024 and 2026.

Novatek's first LNG export project, the three-train, 16.5 million mt/year Yamal LNG facility, sold almost all of its production under long-term contracts ahead of its start-up in 2017.

The company is also working on bringing on stream a fourth train at Yamal LNG with a capacity of around 1 million mt/year using Novatek's own technology.

Transshipment MOU

Separately, Novatek said April 28 it had signed a heads of agreement to sell to Total a 10% stake in Arctic Transshipment, a wholly-owned Novatek subsidiary that will operate the two LNG transshipment complexes currently under construction in Kamchatka and Murmansk.

The transshipment complexes are part of Novatek's logistical chain to optimize the use of the Arc7 ice-class tanker fleet "with the aim to ensure efficient and cost-effective LNG transportation from Arctic LNG 2 and other Novatek projects," it said.

LNG cargoes will be transferred from the Arc7 ice-class LNG tankers to conventional tankers at each location.

Each transshipment complex comprises of a floating LNG storage unit with a capacity of 360,000 cubic meters with two ship-to-ship transshipment points, Novatek said.