Novatek finalises more deals for Arctic LNG 2

Market: Natural gas
11/01/22

Novatek Gas and Power Asia, the trading arm of Russia's Novatek, has finalised two separate long-term agreements to supply Chinese firms with LNG from the planned 19.8mn t/yr Arctic LNG 2 facility.

It has agreed to supply independent firm ENN with 600,000 t/yr of LNG over 11 years on a des basis to ENN's Zhoushan LNG import facility, as well as finalising a 15-year deal with Zhejiang Energy Gas for 1mn t/yr to the buyer's import terminals in China, which was preliminarily agreed in June 2021. The LNG will be sourced from the planned Novatek-led Arctic LNG 2 project, with the first 6.6mn t/yr train expected to start operations in 2023, followed by the second and third equally sized trains in 2024 and 2025, respectively. Novatek did not specify whether the two deals would be tied to specific liquefaction trains.

The two deals follow an earlier one signed between Novatek and China's Shenergy in February for 3mn t/yr of supply from Arctic LNG 2 across 15 years. Novatek has tied more of its expected Arctic LNG 2 offtake in earlier deals, signing two 1mn t/yr deals with trading firm Vitol and Spain's Repsol each, alongside a 500,000 t/yr agreement with Glencore. Novatek was also heard to be in talks with South Korea's Prism Energy for 500,000 t/yr across 12 years starting from late 2023 or early 2024, market participants said.

The firm has now covered a combined 7.1mn t/yr of its 11.9mn t/yr as part of its 60pc equity and offtake from Arctic LNG 2, or 7.6mn t/yr if the Prism Energy agreement is included. Novatek had previously said that it plans to retain around half of this 11.9mn t/yr for marketing on a spot basis, but the new agreements suggest it is willing to tie more than half of its planned supply from Arctic LNG 2 to long-term supply deals. This volume of long-term supply also suggests that at least some of the start dates of the supply deals are staggered across 2023-25, given that the volume exceeds the nameplate capacity of the first train.

But today's agreements also reflect the growing appetite of northeast Asian buyers for term LNG supply contracts, which have tallied up to at least 24 term contracts signed since the start of last year. Extreme volatility and record-high spot LNG prices over the past year have likely prompted buyers in the region to look to more rigid long-term contracts as a means of locking in more predictable and competitive rates, having previously taken advantage of the flexibility offered by spot procurement.

Near-curve oil-indexed term contract prices have stood at wide discounts to spot LNG prices for most of last year, with the oil-linked term prices for February 2022 deliveries based on three-month crude average (301) contracts at a 14.5pc and a 10pc Brent indexation standing at $11.58/mn Btu and $7.98/mn Btu yesterday, respectively. The Argus Northeast Asia (ANEA) spot delivered LNG price for the same month was $30.09/mn Btu.

Chinese firms have accounted for most of these new long-term contracts, likely spurred by growth in the country's demand for LNG imports. But South Korean, Taiwanese and Japanese companies have also stepped up to sign long-term agreements, with South Korea's Kogas and Taiwan's CPC most recently securing deals with Qatar Energy, and Japan's Jera taking a stake in the replacement feedgas supply for Australia's Darwin LNG terminal, ensuring Jera will receive 425,000 t/yr of LNG from the project after its commissioning.

By Ellie Holbrook

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21/11/24

Cost of government support for fossil fuels still high

London, 21 November (Argus) — The cost of government measures to support the consumption and production of fossil fuels dropped by almost a third last year as energy prices declined from record highs in 2022, according to a new report published today by the OECD. But the level of fiscal support remained higher than the historical average despite government pledges to reduce carbon emissions. In an analysis of 82 economies, data from the OECD and the IEA found that government support for fossil fuels fell to an estimated $1.1 trillion in 2023 from $1.6 trillion a year earlier. Although energy prices were lower last year than in 2022, countries maintained various fiscal measures to both stimulate fossil fuel production and reduce the burden of high energy costs for consumers, the OECD said. The measures are in the form of direct payments by governments to individual recipients, tax concessions and price support. The latter includes "direct price regulation, pricing formulas, border controls or taxes, and domestic purchase or supply mandates", the OECD said. These government interventions come at a large financial cost and increase carbon emissions, undermining the net-zero transition, the report said. Of the estimated $1.1 trillion of support, direct transfers and tax concessions accounted for $514.1bn, up from $503.7bn in 2022. Transfers amounted to $269.8bn, making them more costly than tax concessions of $244.3bn. Some 90pc of the transfers were to support consumption by households and companies, the rest was to support producers. The residential sector benefited from a 22pc increase from a year earlier, and support to manufacturers and industry increased by 14pc. But the majority of fuel consumption measures are untargeted, and support largely does not land where it is needed, the OECD said. The "under-pricing" of fossil fuels amounted to $616.4bn last year, around half of the 2022 level, the report said. "Benchmark prices (based on energy supply costs) eased, particularly for natural gas, thereby decreasing the difference between the subsidised end-user prices and the benchmark prices," it said. In terms of individual fossil fuels, the fiscal cost of support for coal fell the most, to $27.7bn in 2023 from $43.5bn a year earlier. The cost of support for natural gas has grown steadily in recent years, amounting to $343bn last year compared with $144bn in 2018. The upward trend is explained by its characterisation as a transition fuel and the disruption of Russian pipeline supplies to Europe, the report said. By Alejandro Moreano and Tim van Gardingen Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Investment funds’ net long on Ice TTF reaches new high

21/11/24

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21/11/24

Investment funds’ net long on Ice TTF reaches new high

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Cop: Talks in Baku torn between mitigation and finance

21/11/24

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21/11/24

Cop: Talks in Baku torn between mitigation and finance

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Cop: EU, four countries commit to 1.5°C climate plans

21/11/24

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21/11/24

Cop: EU, four countries commit to 1.5°C climate plans

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LNG diversions to Europe reach double digits

19/11/24

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19/11/24

LNG diversions to Europe reach double digits

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