A recent decision by Russia’s second-biggest producer Novatek to sell 20 percent of its Yamal Peninsula project to Chinese state oil companies will establish Arctic gas as an alternate source for China’s growing energy needs, the South China Morning Post reports.
The deals with CNOOC and China National Petroleum Corp – the parent of listed PetroChina – were announced at last week’s Belt and Road Initiative forum in Beijing. The agreements are pending due diligence and no investment amount has been disclosed, the newspaper writes.
The deal’s announcement came at a time when the U.S.-China trade dispute has already delayed potential investments by Chinese energy majors in some U.S. projects.
“There is another tier of U.S. projects which need some Chinese investment and or gas purchase commitment to keep going,” says Nicholas Browne, Singapore-based Asia gas and liquefied natural gas director at natural resources consultancy Wood Mackenzie. “Until the trade dispute is cleared up, it will be challenging to make a business case for some of these projects.”
The binding investment commitment in Novatek’s Arctic LNG 2 project by CNOOC and CNPC gave a “vote of confidence” in Russian LNG, particularly in Novatek’s ability to deliver projects, he noted.
“It is a reminder that while U.S. LNG, as the fastest potential source of future global supply growth, may have dominated the headlines, there are a lot of alternative credible projects out there,” the analyst said, citing Mozambique, Qatar, and Canada for locations of rival projects.
The Yamal Peninsula, a frigid area eight hours flying time north of Moscow, became commercially viable thanks to Russia’s deployment of nuclear-powered icebreaker vessels, and global warming that made the northern shipping routes more navigable.
LNG is chilled gas in liquid form and is transported by specialist tankers, and is re-gasified at a receiving terminal before it is sent by pipeline to users.
Russia is the world’s second-largest natural gas producer after the US. Both are relative later comers as LNG producers, although Russia has long been the largest gas exporter by pipeline.