Natural Gas Sales
Our sales of natural gas in the Russian domestic market are mainly through trunk pipelines and regional distribution networks, as well as sales of LNG produced at our small-scale LNG plant in the Chelyabinsk region through our refueling complexes. Our sales of natural gas on international markets are sales of LNG purchased primarily from our joint ventures, OAO Yamal LNG and OOO Cryogas-Vysotsk. In addition, we sell on the European market regasified liquefied natural gas arising during the transshipment of LNG (boil-off gas), as well as during the regasification of purchased LNG at our own regasification stations in Poland and Germany.
In 2020, natural gas sales volumes, including volumes of LNG sold, aggregated 75.62 bcm, representing an decrease of 3.6% as compared with 2019. The decline was mainly due to a decrease in LNG sales volumes purchased from our joint venture OAO Yamal LNG, as a result of an increase in the share of Yamal LNG’s direct LNG sales under long-term contracts and the corresponding decrease in LNG spot sales to shareholders, including NOVATEK. Our natural gas revenues amounted to RR 359 billion, representing a decrease of 13.5%, as compared to 2019, largely due to a decline in LNG sales volumes on international markets and global commodity prices for hydrocarbons.
Sales in the Russian Federation
In 2020, the total volume of natural gas sold in the Russian Federation amounted to 66.69 bcm, increasing by 1.6% compared to the previous year.
NOVATEK has a key role in ensuring supplies of natural gas to the domestic market. During 2020, the Company supplied natural gas to 41 regions within the Russian Federation. Our end customers and traders were located primarily in the following regions: the Chelyabinsk, Moscow and Moscow region, the Khanty-Mansiysk Autonomous Region, YNAO, Lipetsk and Tyumen regions, the Perm territory, Vologda, Nizhny Novgorod, Smolensk, Stavropol, Tula, Leningrad, Belgorod and Kostroma regions. The above regions accounted for more than 94% of our total gas sales in the Russian Federation.
In order to manage seasonal gas demand, NOVATEK has entered into an agreement with Gazprom for underground storage services. Natural gas inventories are accumulated during warmer periods when demand is lower and then used to meet increased demand during periods of colder weather. At year-end 2020, our inventories of natural gas amounted to 0.8 bcm.
NOVATEK, through its subsidiary NOVATEK-AZK, is implementing a pilot project for the sale of LNG as a motor fuel.
In August 2020, the first small-scale LNG plant with a design capacity of 40 thousand tons per annum was launched in Magnitogorsk, located in the Chelyabinsk region. The operator is our wholly owned subsidiary NOVATEK-Chelyabinsk. The LNG produced will be mainly used as motor fuel, and in future for autonomous gasification.
At the end of 2020, 11 LNG refueling stations for automobile transport were in operatins in the Urals, as well as North-Western, Central and Volga Federal Districts of Russia. These stations are located on the main federal highways, in cities and on the territory of industrial enterprises and allow to provide clean-burning fuel to commercial and municipal transport, as well as heavy haul and highway trucks.
Sales on international markets
During 2020, NOVATEK sold 8.9 bcm (6.4 mmt) of LNG. We sold 85 cargos of LNG (including 81 from Yamal LNG) with a total volume of 8.4 bcm (6.1 mmt). In the small- and medium-scale LNG markets we sold 0.4 bcm (0.3 mmt) of LNG, including 63 tanker shipments and more than 2,000 cargoes by trucks (of which 61 tanker shipments and about than 900 cargoes by trucks were from Cryogas-Vysotsk). In 2019, our LNG sales volume amounted to 12.8 bcm (8.5 mmt), with 119 large-scale LNG tanker shipments, including 110 cargoes from Yamal LNG (8.2 mmt) and 65 tanker shipments and more than 400 cargoes by trucks in the small- and medium-scale LNG markets (total volume of 0.3 mmt), including 63 tanker shipments and 240 tanker cargos from Cryogas-Vysotsk.
The decrease in sales volumes on international markets was due to a decrease in purchases from our joint venture Yamal LNG. The decrease in LNG purchases resulted from an increase in the share of Yamal LNG’s direct sales under long-term contracts and the corresponding decrease in LNG spot sales to shareholders, including NOVATEK.
One of our key priorities is to expand the geography of supplies and enhance our presence in main consumer markets. In the reporting year, Yamal LNG supplied its first LNG cargo to the United Arab Emirates market. NOVATEK also shipped its first cargo of LNG to Japan transported eastbound via the NSR by an Arc7 ice-class tanker. This LNG cargo is the Company’s first successful experience of entering and unloading an Arc7 ice-class LNG tanker in a Japanese port, which allows us to increase the volume of LNG supplies to this country.
In 2020, we increased LNG deliveries to Asia-Pacific countries, including shipments via the NSR. During the 2020 summer navigation period, 34 cargoes (2.4 mmt of LNG) were shipped from Yamal LNG along the NSR to the Asian Pacific market, representing a two fold increase compared with the previous year. The use of the NSR eastbound in comparison with the traditional route through the Suez Canal enables the Company to reduce shipping times by 40% and decrease the transportation cost, a key importance to develop our licenses and fields on the Yamal and Gydan peninsulas.
In 2020, we continued to work on expanding the navigational season for LNG shipments from our Arctic projects along the Eastern route of the NSR. In May, the Arc7 ice-class LNG tanker “Christophe de Margerie” successfully transited the Eastbound ice-covered part of the NSR and reached the Bering Strait in only 12 days. The tanker passed the Ob Bay and a part of the Kara Sea without ice-breaker assistance and then met with Atomflot’s nuclear icebreaker “Yamal”, which escorted the tanker with ice navigation on the Еastern part of the NSR. The tanker delivered an LNG cargo produced at Yamal LNG to China. For the first time the voyage took place before the traditional start of the summer navigation season in average ice conditions. Eastbound transportation of LNG along the NSR is not normally performed in May as this represents one of the most difficult months for navigation.
In January 2021, two months after the end of the traditional navigation season in the Eastern part of the Arctic, the Arc7 ice-class Arctic LNG tankers “Christophe de Margerie” and “Nikolay Yevgenov”, chartered by the Yamal LNG project, successfully completed an independent passage along the Eastbound part of the NSR, having reached the Bering Strait in 11 days. Both LNG tankers delivered approximately 140 thousand tons of LNG produced at Yamal LNG to destinations in the Asia-Pacific Region.
Expanding the navigational period along the NSR by almost half the distance and time of LNG transport to the ports of the Asia-Pacific region compared to the traditional route through the Suez Canal allows us to reduce our carbon footprint and decrease carbon emissions by seven (7) thousand tons per round trip.
In 2020, the first ship-to-ship LNG transshipment on the territory of the Russian Federation was completed in the Kildin Strait of the Barents Sea. The Arc7 ice-class LNG tanker “Nikolay Yevgenov” successfully reloaded an LNG cargo delivered from the Yamal LNG facility at Sabetta to the conventional tanker “Yamal Spirit”. The ship-to-ship transfer was conducted at a temporary LNG Offshore Transshipment Complex in the Murmansk region within the seaport of Murmansk. The LNG Transshipment Complex will ensure uninterrupted year-round LNG transshipment from the ice-class tankers carrying LNG produced in the Russian Arctic to conventional LNG tankers.
The ship-to-ship transshipment complex in the Murmansk Region represents another significant milestone in developing NOVATEK’s LNG supply chain from the LNG facilities located in the Russian Arctic to the global natural gas consuming markets. The creation of the transshipment infrastructure allows the Company to develop its internal competencies to perform LNG transshipment in the Russian Federation, as well as optimizing the Arctic tanker fleet.
LNG sales to the world’s main consumer markets, development and optimization of logistics solutions and the expansion of our supply geography confirm the high competitiveness of LNG deliveries from the Arctic all over the world. To date, according to our estimates, 29 countries became the end consumers of natural gas molecules from Yamal LNG since the launch of the project.
In 2020, together with Saibu Gas Co., Ltd. of Japan, we have successfully completed our first joint trial delivery of LNG in ISO containers to China’s Tiger Gas for subsequent sales of LNG in China. The LNG was delivered by sea in Tiger Gas-owned ISO containers from the Japanese Hibiki container terminal to Shanghai, China under a spot contract. It is forecasted that ISO containers of LNG will exponentially increase over the upcoming decades, allowing us to diversify our customer base by including small-scale LNG consumers and entering the downstream markets in China and Japan.
In December 2020, our wholly owned subsidiary, Novatek Green Energy, has launched its first carbon-neutral LNG fueling station in Rostock, Germany. Carbon neutral offsets from a carefully selected portfolio of emission reduction projects, including wind generation projects in developing countries, will be used to compensate for the LNG’s carbon footprint sold to end-customers. The certification of emission reduction projects is performed in accordance with the international standard “Verified Carbon Standard”.
NOVATEK’s broader strategy as a natural gas and LNG producer implies greater involvement in further development of natural gas as a motor fuel both in Russia and abroad. This market segment represents significant growth potential in the context of increasingly stringent environmental standards. Compared to diesel, LNG provides for a significant reduction of emissions of nitrogen oxides, carbon dioxide and almost complete elimination of particulate matter emissions.
As part of NOVATEK’s long-term strategy, the Company plans to build a network of LNG fueling stations in Europe to provide heavy duty transport with clean fuel at key transport connecting points between Germany and Poland. At the end of January 2021, the Company owned a network of 9 LNG fueling stations in the European market as well as 21 regasification facilities.