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Natural Gas Sales

NOVATEK sells natural gas within the Russian Federation as well as exports natural gas in the form of LNG. The Company started exporting LNG in December 2017 when the first train at the Yamal LNG project started production. In addition, on the European market we sell 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.

In 2019, natural gas sales volumes, including volumes of LNG sold, aggregated 78.45 bcm, representing an increase of 8.8% as compared with 2018 mainly due to an increase in LNG sales volumes purchased from our joint ventures Yamal LNG and Cryogas-Vysotsk. Revenues from natural gas sales amounted to RR 415 billion, representing a 10.6% increase compared to 2018. The revenue increase was mainly driven by the increase of LNG volumes sold and an increase in sales prices in the Russian domestic market.

Sales in the Russian Federation

In 2019, the total volume of natural gas sold in the Russian Federation amounted to 65.65 bcm, decreasing by 0.6% compared to the previous year.

NOVATEK has a key role in ensuring supplies of natural gas to the domestic market. During 2019, the Company supplied natural gas to 40 regions within the Russian Federation. Our end customers and traders were located primarily in the following regions: the Chelyabinsk, the Khanty-Mansiysk Autonomous Region, Moscow and Moscow region, Lipetsk,YNAO, Tyumen, Vologda, Stavropol, Nizhny Novgorod, Smolensk, Tula, Belgorod and Kostroma regions and the Perm territory. The above regions accounted for more than 92% 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 2019, our inventories of natural gas, including LNG, amounted to 1.2 bcm.

NOVATEK, through its subsidiary NOVATEK-AZK, is implementing a pilot project for the sale of LNG as a motor fuel.

In September 2019, the first public multi-fuel station in the Russian Federation with liquefied and compressed natural gas (LNG and CNG) was put into operation in the Chelyabinsk region. On the territory of Chelyabinsk, NOVATEK-AZK equipped an LNG refueling station to provide refueling for 33 municipal buses.

Together with industrial enterprises of the Chelyabinsk region, we implemented a project to convert a number of pilot automotive vehicles (haul trucks and highway trucks) to the dual-fuel mode (LNG + diesel), which are refueled at stations located on the territory of the enterprises.

During 2019, the construction of a small-scale LNG plant in Magnitogorsk with a capacity of 45 mmtpa was carried out by our subsidiary NOVATEK-Chelyabinsk.

Sales on international markets

Growth of LNG sales on the international market in 2019 demonstrated NOVATEK’s transformation into a global gas company. Yamal LNG is now the largest LNG plant in Russia having an aggregate share of approximately five percent of the global LNG market.

During 2019, we sold 12.8 bcm (8.5 mmt) of LNG. We dispatched 119 large-scale LNG tanker shipments with a total volume of 12.4 bcm (8.3 mmt). In the small-scale LNG market we sold 0.4 bcm (0.3 mmt) of LNG, including 65 tanker shipments (of which 63 were delivered from Cryogas-Vysotsk) and more than 400 cargoes by trucks. In 2018, our LNG sales volume amounted to 6.1 bcm (4.0 mmt), with 57 large-scale LNG tanker shipments, including 50 cargoes from Yamal LNG.

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 cargoes to Japan, South Korea, and Bangladesh.

In October 2019, under a long-term agreement with Naturgy (formerly Gas Natural Fenosa), Yamal LNG delivered its first LNG cargo to the Sines Terminal, Portugal, where no Russian pipeline gas is supplied.

In the reporting year, we increased LNG deliveries to Asia-Pacific countries, including shipments via the Northern Sea Route (NSR). During the 2019 summer navigation period, 17 cargoes (1.2 mmt of LNG) were shipped from Yamal LNG along the NSR to the Asian Pacific market, which is more than four times higher than in the previous year. The use of the NSR eastbound enables the Company to reduce shipping times and costs, a key importance to develop our licenses and fields on the Yamal and Gydan peninsulas. LNG sales to the world’s main consumer markets and the expansion of our supply geography confirm the high competitiveness of LNG deliveries from the Arctic all over the world.

In December 2019, Novatek Polska, a wholly owned subsidiary, launched an LNG filling station to provide clean-burning fuel for cargo trucks in Rostock, Germany. The LNG filling station can refuel up to 120 vehicles per day.

This represents NOVATEK’s first LNG filling station in Europe, as the Company plans to build a network of stations in Germany and Poland within the next few years at key transport connecting points. 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.