Russia advances LNG race with multibillion-dollar Arctic project

Updated 05 September 2019

Russia advances LNG race with multibillion-dollar Arctic project

  • Novatek poised to become a global LNG leader as it seeks to rival Qatar in production of the super-chilled fuel

VLADIVOSTOK: The $21 billion Arctic liquefied natural gas (LNG)-2 project led by Russian private gas producer Novatek won a green light, the latest in a raft of new projects aimed at meeting a likely doubling of LNG demand over the next
15 years.

Arctic LNG-2 is expected to launch in 2023 and will aim to export 80 percent of its LNG to Asia, Novatek Chief Executive Leonid Mikhelson, Russia’s richest businessman according to Forbes magazine, said after the project’s partners signed a final investment decision (FID) at an economic forum.

At nearly 20 million tons per annum (mmpta) of LNG it would be largest single project to reach FID, according to Wood Mackenzie, and take total LNG volumes sanctioned this year to about 63 mtpa, beating the previous record of 45 mmtpa in 2005.

Arctic LNG-2 will be the third LNG project for Novatek, which hopes to match Qatar in production of the super-chilled fuel.

“Novatek is clearly driving home their ambitions to be a global LNG power house,” said Chong Zhi Xin, associate director of gas, power and energy at IHS Markit.

“It adds another 12 million tons to their portfolio on an equity basis. They are emerging as one of the largest LNG suppliers in
the market.”

The project’s equity partners include French energy producer Total, China’s National Petroleum Corp, CNOOC and the Japan Arctic LNG consortium, made up of Mitsui & Co. and state-owned JOGMEC, formally known as Japan Oil, Gas and Metals National Corp.

“This is an important project for Russia and follows our strategy to create capacities for LNG production,” Russian Energy Minister Alexander Novak said, adding that investments in the project had been set at $21 billion.

Japanese Industry Minister Hiroshige Seko said the project is one of the largest in the history of Japanese-Russian relations.

“It will unite Japan and Russia even more, as well as Europe and Asia. The Japanese
government will provide all necessary assistance for the realization of this project,” he said.

The Arctic LNG-2 project will include construction of three LNG trains with a capacity of 6.6 million tons per annum (mtpa) of LNG each and at least 1.6 mtpa of gas condensate, according to Novatek’s website.

Located on the Gydan peninsula in Russia, the project is expected to export its first LNG by 2023 with the second and third train to start up by 2024 and 2026, Total said in a statement.

It will help Russia reach its goal of producing 120 to 130 million tons of LNG a year in the coming years and raise its share in the global LNG market to up to
20 percent.

It follows FIDs announced from Canada, the US and Mozambique over the past year and plans to target Asian demand driven by major economies shifting toward greener fuel to combat pollution.

The project will benefit from extremely low cost gas, helping it compete against LNG from the US and Canada, said Wood Mackenzie analyst Nicholas Browne.

LNG from the project will also be delivered to international markets by a fleet of ice-class LNG carriers that will be able to use the shorter Northern Sea Route and the trans-shipment terminal in Kamchatka for cargoes destined for Asia and the trans-shipment terminal close to Murmansk for cargoes destined for Europe, Total said.

“Arctic LNG 2 adds to our growing portfolio of
competitive LNG developments based on giant low cost resources primarily intended for the fast growing Asian markets,” Total’s chief executive Patrick Pouyanné said in the statement.

The increase in supply from Russia and more intense
competition may push down LNG prices and help move Asia toward a more gas-based economy, said IHS Markit’s Chong. 

Fed trades ‘remarkably positive’ for ‘no precedents’ after volatile year

Updated 2 min 20 sec ago

Fed trades ‘remarkably positive’ for ‘no precedents’ after volatile year

  • Authorities likely to cut interest rates by a quarter of a percentage point this week

WASHINGTON: A year ago, US Federal Reserve Chair Jerome Powell held a “remarkably positive outlook” for an economy enjoying a “historically rare” combination of good news including low unemployment, steady inflation and strong growth that were all expected to continue.

When the Fed meets this week, the discussion will be about just how badly that outlook has eroded, and whether officials should still describe themselves as simply tinkering with policies that are about right, or embarked on a more aggressive fight to keep the US recovery on track.

A headline decision to cut interest rates by a quarter of a percentage point is widely expected. More importantly, the Fed’s language and new economic projections will show how deeply a summer of trouble has been felt — from an intensifying US-China trade war and the relaunch of crisis-style stimulus by the European Central Bank to a stream of weak manufacturing data that may hint at larger problems for the US.

“At the end of 2018 it looked like the economy was moving forward in a continued solid manner,” said David Wilcox, director for the Fed’s division of statistics and research until the end of last year and now a fellow at the Peterson Institute for International Economics.

“The risks were predominantly to the upside and it was not prominent on our radar screen or anybody’s that the trade war’s machinations would be taken to the extent that they have been ... The news from abroad, by wide consensus, has been disappointing.”

The US Federal Open Market Committee meets on Tuesday and Wednesday, with a press conference by Powell scheduled to follow the release of the central bank’s statement. The Fed’s likely action to lower its target policy rate to a range of between 1.75 percent and 2 percent, policymakers hope, will boost the economy by easing borrowing costs on everything from car loans to corporate bonds.

Markdowns at the Fed

Since the end of last year, Fed decisions — to take rate hikes off the table in January and then to cut rates in July for the first time in a decade — have helped drive the average 30-year fixed rate home mortgage from an eight-year high of 4.94 percent to around 3.5 percent, for example, enough to save a homeowner more than $200 a month on a $250,000 loan. Since the July rate cut corporate bond issuance has surged as firms take advantage of record low long-term borrowing rates, saving them money or providing capital for projects.

Between September 2018 and their last set of quarterly forecasts issued in June, Fed officials slashed half a percentage point of expected growth from their median projection for 2019 and marked down inflation further away from their 2 percent target. 

At that September 2018 meeting, they had also projected that the fed funds rate would hit 3.1 percent by the end of 2019. It is currently at around 2.1 percent and likely heading lower.

New projections issued Wednesday will show whether officials think things are getting worse, and how much further they think they need to go in terms of rate cuts or other steps to stay ahead of any developing problems.

It’s a tough call that has divided Fed officials among those who want to cut fast and deep, those who want to go slow, and those who want to do nothing at all.

It’s all the economies

US data have been mixed since the Fed last met in July. Business investment has remained weak. Indicators of manufacturing output fell. Employment growth slowed. 

Yet even at the lower-than-expected level of 130,000, the number of jobs created in August is more than enough to absorb new entrants into the workforce and keep the unemployment rate at 3.7 percent.

Wage growth has continued, and “consumers remain the locomotive of the economy,” JP Morgan economist Michael Feroli said after retail sales jumped more than expected in August. 

“There is little reason to expect a near-term retrenchment,” as households benefit from a tight job market and, if the Fed cuts interest rates as anticipated, lower costs to fund home improvements or other large purchases.

In his final public comments before the upcoming meeting, Powell described the US labor market as in “quite a strong position,” and downplayed any risk of recession in the US. Yet it is not just US data Powell is concerned with.