“Novatek sells LNG to China at significant discounts"

Alexey Gromov, Principal Director on Energy Studies at the Institute for Energy and Finance, gave an interview to the Novye Izvestia newspaper on the current situation and prospects for Russian LNG exports under unprecedented sanctions pressure.

— According to the Western press, the LNG produced by Novatek is no longer needed by anyone. Is it so?

— If we are considering the situation with orders for LNG produced by Novatek right now, I mean the Yamal LNG and Arctic LNG 2 projects, which have been shipping since August, then there is demand for this LNG. If we talk about Yamal LNG, 75% of the demand is realized in Europe, the rest of the supplies go to China.

Arctic LNG 2 is fully focused on the Chinese market. By the end of the year, we expect that about a million tons of LNG from Arctic LNG 2 will leave the planned six million.

— Was India not considered as a buyer?

— Not at this point. It was considered for the future.

The new capacities that Novatek planned to introduce, meaning the second and third stages of Arctic LNG 2, the future Murmansk LNG, were, of course, considered with an eye to new markets, in particular the Indian market.

— However, Indian officials say they will not work with sub-sanctioned gas.

— The political statement of the Indian leadership was made "here and now". The situation in the world is changing very quickly. We remember 2023, when India was not among the buyers of Russian oil at all and in just a few months became its second buyer after China.

I would not give any importance to these statements of the Indian side in the long term.

— How will Novatek increase sales? Whom do sell to?

— It should be understood that Novatek has contracts for the supply of LNG from Arctic LNG 2 to Chinese partners. We are currently supplying less gas than the Chinese have contracted for the long term. This is the main relief for the guaranteed LNG sale by Novatek.

— How much more are Russian discounts than Australian and Qatari ones?

It can be assumed that it is significantly higher than the discounts provided by Qatar and Australia, because otherwise Chinese buyers would not have dared to take such a risk — to work with a sub-sanctioned project. Since they work with this risk, it means that they receive good cash dividends from this in the form of a big discount.

— How do you see the prospects for Russian LNG exports?

— In the perspective that we are talking about, the next two to three years, Novatek has buyers, there are unused contractual obligations that are not fulfilled to the Chinese due to force majeure, I do not see any problems. There will be sales of Russian LNG.

Another thing is what will be closer to 2030. But this is an issue that the company needs to work on. There is demand for LNG in South and Southeast Asia. It will increase in the future.

Of course, this is a matter of competition with other projects in this area. Both Qatar and the United States are also going to actively expand their business. The question is how active Russia will be in countering the sanctions that have been imposed. India has abandoned Russian LNG due to fears of secondary sanctions. I am sure that other countries are also afraid, those that have not yet bought Russian LNG. This is a task to be solved.