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 mainly through its own refueling complexes. The LNG sold on the domestic market is produced at our small-scale LNG plant in the Chelyabinsk Region, or purchased mainly from our joint venture OOO Cryogaz-Vysotsk. 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 2021, natural gas sales volumes, including volumes of LNG sold, aggregated 75.8 bcm, representing a marginal increase of 0.3% as compared to 2020. An increase in natural gas volumes sold on the domestic market completely offset a decline in natural gas volumes sold on the international markets. The increase in natural gas volumes sold on the domestic market resulted from the launch of additional production facilities, as well as higher demand from end-customers due to weather conditions. The decline in natural gas volumes sold on the international markets was due to a decrease in LNG sales volumes purchased primarily 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 the Group.
Our natural gas revenues amounted to RR 524.1 billion, representing an increase of 46.0%, as compared to 2020 largely due to an increase in sales prices on international markets, as well as an increase in prices and sales volumes on the domestic market.
Sales in the Russian Federation
In 2021, the total volume of natural gas sold in the Russian Federation amounted to 67.87 bcm, increasing by 1.8% compared to the previous year.
NOVATEK has a key role in ensuring supplies of natural gas to the domestic market. During 2021, the Company supplied natural gas to 40 regions within the Russian Federation. Our end customers and traders were located primarily in the following regions: Chelyabinsk Region, Moscow and Moscow Region, Khanty-Mansiysk Autonomous Region, Lipetsk Region, Perm Territory, YNAO, Vologda, Stavropol, Tula, Tyumen, Smolensk, Nizhny Novgorod, 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 2021, our inventories of natural gas amounted to 0.77 bcm.
NOVATEK is implementing a pilot project for the sale of LNG as a motor fuel and for autonomous gasification. The implementation of this project is operated by our wholly owned subsidiary OOO NOVATEK–LNG Fuel, registered in 2021, which will construct small-scale LNG plants, facilitate LNG wholesale markets and develop a retail network for LNG as a motor fuel in the Russian domestic market.
LNG sales are carried out from our small-scale LNG plant in Magnitogorsk, launched in 2020, located in the Chelyabinsk Region. In 2021, over 14 thousand tons of LNG were sold from the Magnitogorsk LNG plant.
Additionally, to provide fuel for automobile transport in the North-Western and Central Federal Districts, LNG is purchased from Cryogaz-Vysotsk. In 2021, the sold volume amounted to more than 15 thousand tons.
At the end of 2021, 13 LNG refueling stations for automobile transport were in operations in the Urals, as well as North-Western, Central and Volga Federal Districts of Russia (two of them were built in the reporting year in Naberezhnye Chelny and Samara). 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. In 2021, the volume of sales at filling stations increased fivefold.
Sales on international markets
In 2021, NOVATEK sold 7.9 bcm of gas (5.7 mmt of LNG). We sold 73 tanker cargo lots of large-scale LNG (including 71 cargoes from the Yamal LNG plant) totalling 7.3 bcm of gas (5.2 mmt of LNG); in the small-scale and mid-scale LNG markets, the Company sold 0.6 bcm of gas (0.4 mmt of LNG), including 92 tanker cargo lots and over 3,800 truck cargo lots, which included 82 tanker cargoes and about 1000 truck cargoes from the Cryogas-Vysotsk plant, and also we sold a total of 0.1 mmt of boil-off gas. In 2020, we sold a total of 8.9 bcm of gas (6.4 mmt of LNG), with 85 large-scale tanker cargo lots of LNG (including 81 cargoes from the Yamal LNG plant) totalling 8.4 bcm of gas (6.0 mmt of LNG), 63 tanker cargoes and about 2,000 truck cargo lots in the small-scale and mid-scale LNG markets (totalling 0.3 mmt), including 61 tanker cargo lots and about 900 truck cargoes from the Cryogas-Vysotsk plant, as well as boil-off gas (0.1 mmt).
The decrease in international sales volumes was due to the reduction of LNG volumes acquired from our joint venture Yamal LNG because of the increase of Yamal LNG direct sales share under long-term contracts and respective reduction of LNG spot sales via shareholders, including NOVATEK.
One of our key priorities is to expand the geography of supplies and enhance our presence in key markets. To achieve these goals, the Company continues to actively increase the cargo turnover via the Northern Sea Route and is working to expand the navigation window for LNG deliveries from our Arctic projects along the eastern sector of the NSR.
In 2021, an all-time record was set for performing voyages via the eastern part of the NSR – 44 LNG cargoes were delivered to the Asia-Pacific Region market both under long-term contracts and as part of spot optimization deliveries. Among these deliveries were two voyages that delivered cargoes via the NSR in January 2021 to China and South Korea two months later than the traditional navigation season closure.
Longer period of navigation along the NSR due to almost halving the distance and time of LNG shipping to ports in Asia-Pacific Region compared to the traditional southern route through the Suez Canal makes it possible to mitigate carbon footprint and reduce carbon emissions by 7,000 tons per round trip.
The transshipment facility in the Murmansk Region is another important step in the development of the LNG supply chain from the Russian Arctic to global gas markets. Building the transshipment infrastructure allows the Company to develop its own competences and perform LNG transshipment in Russia, as well as optimize the operation of its own unique Arctic-class tanker fleet.
As part of its long-term strategy, NOVATEK has been implementing a plan to build a network of LNG retail stations in Europe to provide clean-burning fuel for heavy-duty trucks at key transport nodes in Germany and Poland.
In 2021, the Company commissioned 10 cryogenic filling stations (8 in Germany and 2 in Poland) and 27 regasification units in Poland. The total number of operating facilities on the European market at the end of 2021 was 16 LNG filling stations (12 in Germany, 4 in Poland) and 48 regasification units (1 in Germany, 47 in Poland).
In November 2021, the first delivery of bioLNG was performed to a cryogenic filling station in Rostock, Germany.
NOVATEK’s strategy as a natural gas and LNG producer implies greater involvement in the promotion of natural gas as 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 significantly reduces the emissions of nitrogen oxides, carbon dioxide and almost completely eliminates particulate matter emissions.
In 2021, the Company signed Memorandums of Understanding on LNG supply decarbonization with TotalEnergies and RWE Supply&Trading GmbH. The parties intend to explore opportunities in the area of carbon-neutral LNG supply.
In September 2021, NOVATEK signed a Strategic Cooperation Agreement on Low Carbon Footprint Projects with the Japan Bank for International Cooperation (JBIC). NOVATEK and Ministry of Economy, Trade and Industry of Japan signed a Memorandum of Cooperation on Ammonia, Hydrogen and Carbon Capture, Storage and Utilization. The parties intend to provide bilateral support for projects in the field of production and sale of ammonia and hydrogen, as well as carbon capture and storage technologies in Russia and Japan.
The successful sales of our LNG to the world’s leading markets, the variability and optimization of logistics solutions to reduce the already low carbon footprint of our LNG demonstrate the high competitiveness of Arctic LNG around the world. We estimate that so far LNG from the Yamal LNG plant has been consumed in 33 countries since the launch of the Project.