Update: Russia’s Novatek signs long-term LNG agreement with ENGIE

Russia’s largest independent gas producer Novatek has signed long-term agreements with French and Anglo-Dutch portfolio companies ENGIE and Shell for LNG sourced from the Yamal LNG project, it said in respective statements on 2 and 4 June.

Novatek has access to volumes from Yamal LNG as a majority stakeholder in the project (60%). The 1mtpa contract with ENGIE extends for 23 years and stipulates sales on a free on board (FOB) basis from France’s Montoir LNG terminal. The contract is understood to be linked to crude oil.

This means ENGIE will purchase the volumes in-tank at Montoir. The volumes could also be transferred from Yamal LNG’s fleet to ENGIE’s vessels in the port as a ship-to-ship (STS) transfer operation.

Novatek has also concluded an agreement with Elengy, the operator of Montoir LNG terminal said in a statement on 2 June.

“Elengy will thus enable Novatek Gas & Power to transfer LNG cargoes of LNG vessels from the Yamal LNG plant to his client’s vessel,” the terminal operator said. The terminal will also be modified in order to provide these services safely during the entire period of the contract.

“In particular, the transfer rate will be improved compared to the current one,” Elengy said.

According to Elengy, the company has already performed four transshipments between standard vessels at the Montoir-de-Bretagne terminal since 2013. ICIS understands that transshipment services in Montoir fall outside of regulated tariffs.

Novatek’s contract with Shell is for 0.9mtpa over a 20-year period, although neither a start date nor location was disclosed for the transfer of volumes. In May 2014, Russia’s Gazprom Marketing & Trading signed a crude-indexed agreement with Yamal LNG for offtake of up to 3mtpa on an FOB basis from Belgium’s Zeebrugge terminal.

Yamal LNG has also signed an agreement with Belgian gas infrastructure operator Fluxys for the use of the Zeebrugge terminal for transshipment purposes.

The 16.5mtpa Yamal project is expected to start production in late 2017, with expectations of reaching full capacity by 2021. Most of the volumes expected to be produced by the project have been contracted out. Its volumes have been sold to France’s oil and gas major Total, Novatek, China’s state-owned CNPC, Spanish gas utility Union Fenosa Gas and Gazprom Marketing & Trading.

While a bulk of the volumes is earmarked for delivery to Asia, at least 4mtpa will be transshipped via Europe. A source in Russia said at least some of the 2.5mtpa contracted to Union Fenosa Gas is likely to be reloaded.

“If you look at the domestic markets in Belgium, France and Spain, you’ll find very little domestic demand to warrant LNG imports,” the source based in Russia said.

According to the source, Yamal LNG needs the midstream flexibility that these deals provide. “For buyers, two FOB locations in northwest Europe give exposure to local hub markets, which can be used to hedge the risks,” the source said.

“I think that under all three contracts that will see volumes head to Europe for re-export, India is likely to be the main target market,” the source added. Emerging markets in the Middle East and North Africa could also present an opportunity for the buyers of Yamal volumes, although only Gazprom Marketing & Trading currently holds a supply position with Egypt’s state-owned EGAS. Total holds a 20% stake in Yamal, while the remaining 20% is controlled by CNPC.

“Signing another long-term binding agreement on LNG supply from the Yamal LNG project ensures a well-balanced LNG sales portfolio and contributes to closing the project’s external financing,” Leonid Mikhelson, chairman of Novatek’s management committee, said in the statement.

The contracted volumes will complement and diversify ENGIE’s long-term supply portfolio, Gerard Mestrallet, the CEO of ENGIE, said in a separate statement.

“They will allow us to address the growing LNG demand as well as our customers’ concern for a reliable, environmental-friendly [sic] energy,” he added.

Neither Novatek, ENGIE nor Elengy replied to requests for comments by 3 June.

roman.kazmin@icis.com and

ludovic.aldersley@icis.com