Expansion at the state’s expense: Novatek as a driving engine of the Russian LNG sector. OSW Commentary NUMBER 275 | 27.06.2018

• Main Author: Kardaś, Szymon
• Format: Report
• Language: unknown
• Published: 2018
• Subjects: Russia; Arctic; Yamal Peninsula; Sakhalin
• Online Access: http://aei.pitt.edu/94337/; http://aei.pitt.edu/94337/1/commentary_275.pdf; https://www.osw.waw.pl/en/publikacje/osw-commentary/2018-06-28/expansion-states-expense-novatek-a-driving-engine-russian-lng

A deal for France’s Total to acquire a 10% stake in the Arctic LNG 2 project for US$2.55 billion was struck on 24 May during the International Economic Forum in Saint Petersburg. This project envisages the construction of a natural gas liquefaction plant on the Gydan Peninsula and is being implemented by Novatek, Russia’s largest private natural gas producer. In December 2017, the company launched the first production line of an LNG terminal on the Yamal Peninsula – the Yamal LNG project. In addition to this, Gazprom and Rosneft have confirmed their intention to implement their own LNG projects. The balance of the actions taken so far suggests that at present Novatek is the only Russian company to successfully implement new LNG projects in Russia. Apart from the LNG terminal operating since 2009 on Sakhalin Island (Sakhalin 2), other projects announced by Gazprom and Rosneft have not made it past the planning stage so far, and there is nothing to suggest that this might change in the coming years. The positive results of Novatek’s operation in the LNG sector are above all a consequence of the financial, administrative and political support it has received from the Russian government. It cannot be ruled out that the Arctic LNG 2 project will also be given similar preferential treatment. The state has offered numerous privileges to Novatek because the company’s owners, especially Gennady Timchenko, have close social and business contacts with Vladimir Putin. Even though the Russian government has not adopted a separate strategy on the LNG sector, many facts indicate that political support for Novatek’s projects is motivated not only by the desire to increase Russia’s share in the global LNG market, but is also a means to maintain balance between the competing groups of interest in the Russian energy sector. The recognition of Novatek’s dominant position in the Russian liquefied natural gas sector could be used by the government as an argument to maintain Gazprom’s privileged position in gas exports via the pipeline system, while both Novatek and Rosneft have been lobbying for Gazprom’s export monopoly to be curbed. In turn, Rosneft might receive the government’s approval for further expansion in the oil sector.