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Novatek gas sales plunge on reduced Yamal spot sales

A ramp-up in long-term contract requirements leaves operator with reduced volumes to sell

Russian producer Novatek saw its gas sales to international markets plunge by 32pc in the second quarter of 2020 compared with the same period last year, while half-year figures were down by 30pc. This was despite gas production being broadly similar in 2020 to 2019.

The firm produced 18.5bn m³ (203mn m³/d) of gas in the second quarter compared with 18.9bn m³ in Q2 2109. For the half-year, 2020 actually saw a slight increase in production, with output edging closer to 37.6bn m³.

But international gas sales plunged from 3.65bn m³ to 2.5bn m³ for the quarter and from 7.1bn m³ to 4.9bn m³ for the half-year. Russian domestic sales were also down, but much less significantly—from 15.1bn m³ and 33.9bn m³ to 14.4bn m³ and 32.7bn m³ respectively.

Less spot availability

The much larger decline in international sales was driven by a decline in the LNG sales volumes that Novatek was able to purchase from its Yamal LNG joint venture as a result of an increase in the share of Yamal LNG’s direct sales under long-term contracts.

32pc — Q2 fall in sales

LNG spot sales to shareholders fell correspondingly, the firm says. Novatek holds a 50.1pc stake in the 17.4mn t/yr project, with Total and Chinese NOC CNPC holding 20pc shares while Chinese state-owned investment vehicle the Silk Road Fund holds a 9.9pc stake.

The firm flagged that maintenance at two Yamal LNG trains did contribute a drop in Q2 gas production, but the year-on-year fall was only 410mn m³, whereas the deficit in international gas sales was 1.2bn m³. It makes sense that the Silk Road Fund, as a purely financial investor, would not offtake spot cargoes from Yamal, so Novatek’s share of spot volumes would be higher than when it is just taking its equity entitlements from Yamal contract sales.

But the size of the gap between the figures—assuming overall Yamal LNG volumes are not down materially—suggests the assignment of Yamal spot cargoes does not necessarily split in proportion to the equity stake and that Novatek may receive a greater share of the spot pie.

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