Moscow wants Gazprom’s Sakhalin-2 project to supply LNG to the Kamchatka region in Russia’s Far East, according to a roadmap document published on Monday.
This should remove some 600,000 tons per year of Sakhalin-produced LNG from the spot market in Asia-Pacific.
The Russian government expects an LNG supply agreement to be signed in the first quarter of 2024, the roadmap says.
Subsidized Domestic Supply
State-run Gazprom will buy LNG from the project and re-sell the gas to domestic consumers in Kamchatka, is the understanding.
Domestic sales normally are not attractive economically to large plants, because of the relatively low regulated prices at home.
That is why the government instructed the relevant ministries, the antimonopoly service and Kamchatka region administration to determine in the fourth quarter this year the sources of financing to compensate for the difference between the economically feasible price for the LNG supply and the regulated tariffs in the Kamchatka region.
From Spot to Kamchatka
Kamchatka’s consumption is estimated at around 750 million cubic meters per year, meaning the 11 million-plus tons/yr Sakhalin-2 might need to redirect some 600,000 tons per year of LNG from the volumes not covered by term contracts.
Sakhalin-2, operated by Gazprom-controlled Sakhalin Energy, now only sells LNG to export markets in Asia.
Term contracts that are still executed cover 7.245 million tons/yr, mainly sent to Japan, whose Mitsui and Mitsubishi have non-controlling stakes in the project. The rest is sold on spot, including to China which has significantly increased spot purchase from Sakhalin-2 over the past several years.
Contracts for another 2 million tons/yr haven’t been executed since last year due to withdrawal of key shareholder and 1 million ton/yr offtaker Shell and Moscow’s sanctions against another 1 million ton/yr offtaker SEFE Marketing & Trading, previously owned by Gazprom but taken over by Germany last year.
Novatek’s Involvement
Privately owned LNG developer Novatek plans later this year launch a gas transshipment terminal in Kamchatka to reload LNG cargoes from the operational Yamal and soon expected Arctic LNG 2 plants. The terminal was considered a potential source of the boil-off gas supply to Kamchatka domestic consumers, but the current plan is to build a separate regasification terminal close to the city of Petropavlovsk-Kamchatsky.
Novatek will be involved in construction of the terminal infrastructure, although Gazprom will operate it, according to the roadmap.
Moscow also considered Novatek’s Arctic LNG projects as potential sources of supply for Kamchatka, but Novatek sought additional LNG resource base in the Arctic in return.
Novatek’s Stake
Novatek was also earlier this year approved to buy the 27.5% minus one share stake in Sakhalin-2 which was previously held by Shell, but it is not clear when Novatek will close the deal to buy the stake from the Russian government.
Shell refused to take the stake in Russia-registered Sakhalin Energy, established by Kremlin decree last year to replace the previous operator, Bermuda-registered Sakhalin Energy Investment Co.
