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Russian gas company NOVATEK and German engineering firm Siemens
Energy signed a framework agreement on initiatives that will help
decarbonize NOVATEK'S LNG activities.
The two companies announced a broad "strategic partnership and
cooperation" agreement on 10 December. Future work will impact
NOVATEK's assets in Russia's Arctic north, where decarbonization
could have an outsized impact. The world's Arctic regions are
especially sensitive to greenhouse gases (GHGs) and their effect on
environmental conditions such as air temperature and melting
permafrost.
"Our strategy to expand LNG production in the Arctic region is
based on utilizing state-of-the-art technological solutions that
meet or exceed stringent environmental requirements," said NOVATEK
CEO Leonid Mikhelson, in reference to the sensitivities of Arctic
hydrocarbon development.
NOVATEK is Russia's largest LNG producer, with the Yamal LNG
facility in the Arctic producing nearly 20 million metric tons
(MMtpa) of LNG in 2019, according to IHS Markit. NOVATEK's Arctic
LNG 2 project reached final investment decision in September 2019,
and it will have a similar capacity to Yamal LNG, at 19.8 MMtpa.
Arctic LNG 2's projected startup is currently scheduled for
2024.
The firms' announcements were light on detail, instead
suggesting that "strategies to be evaluated" could include lowering
carbon intensity in power generation and LNG production, as well as
starting to use hydrogen to produce LNG.
Hydrogen
Both companies specified one area of focus: building capacity to
use "blue" and "green" hydrogen in producing electricity and LNG,
rather than using natural gas as a direct feedstock to power each
process.
Green hydrogen is generated from water-based electrolysis
derived from renewables like wind and solar. Blue hydrogen is
derived from natural gas and used in combination with carbon
capture technologies, resulting in a lower carbon product.
At least one expert was skeptical the announcement will lead to
meaningful decarbonization. "For now, it's purely a PR event, with
no particular reduction in carbon footprint," said Maxim Nechaev, a
director of consulting in IHS Markit's Russian and Caspian Energy
(RACE) service.
Nechaev stressed that the early stage for hydrogen technologies
in Russia—and its absence in remote industrial sites such as
Yamal LNG on the eponymous peninsula—will hinder deeper carbon
reduction.
"The only way they [the companies] can get hydrogen to the LNG
plant location is to produce it right there," Nechaev said. "This,
in turn, requires power, which is produced by natural gas burn in
this remote area—there are no renewable energy generators
there."
Nonetheless, the deal advances a years-long relationship between
the companies. Siemens supplied four boil-off gas compressors and
eight 62-MW gas turbines for Yamal LNG, and Siemens Energy (an
independent company spun off from Siemens Group in April 2020) will
provide six boil-off gas compressors and three feed gas booster
compressors for Arctic LNG 2.
The latest NOVATEK-Siemens collaboration supports Russia's far
larger ambition to cement its place as the "fourth pillar" of
global LNG supply-after Qatar, the US, and Australia-by the 2030s.
That folds into the Russian government's sweeping Energy Strategy
to 2035, adopted in June.
The official strategy aims to grow Russian LNG production to
between 80-140 MMtpa by 2035, a substantial ratcheting-up from
70-82 MMtpa, which figured in a draft version of the plan from
October 2019.
Carbon footprint plan
NOVATEK has laid out its own plan for reducing its carbon
footprint. By 2030, NOVATEK aims to have reduced its methane
emissions by 4% from its 2019 level, which was 10.44 tons per
million barrels of oil equivalent. The company has targeted a 5%
reduction of GHGs from its LNG production, also compared with its
2019 total, or 0.263 tons of carbon dioxide equivalent per ton of
LNG.
NOVATEK's environmental efforts reflect the current tone of
climate-minded investors more than government policies, and are
primarily a way of staying competitive with other international
firms, said Anna Galtsova, a research director in IHS Markit's RACE
practice.
"I don't think that Russian companies feel the pressure on
environmental issues from the government," Galtsova said. "These
companies want to be on the same road as global majors. They care
much more about their investment community attitude rather than the
Russian government."
From a social perspective, Russia's Arctic hydrocarbon
developments has stirred controversy for decades. Since May, an oil
spill at Norilsk, another Russian Arctic area, has provoked outcry
from domestic and international environmental groups. The region's
heavy oil and gas activity, crumbling infrastructure, and thawing
permafrost have many observers worried that such incidents could
become more frequent in the future.
The world's polar regions are especially sensitive to climate
change. Arctic regions like those in Russia are warming between
2-2.5 times more quickly than the global average, according to
scientific consensus. Mitigation of climate change is "of paramount
importance" as the company seeks to reduce its carbon footprint in
the Arctic ecosystem, NOVATEK's Mikhelson added.
Beyond LNG, Arctic activity stands at the heart of Russia's gas
production plans. The bulk of reserves are found in the Arctic
region of Yamal-Nenets, the site of 80% of gas production in
Russia—and 15% of the global total, NOVATEK said.
Yamal-Nenets holds about one quarter of Russia's proven and
probable, or 2P, reserves for oil and gas, making the region one of
the world's "super basins," according to IHS Markit. Russia ranked
as the 6th-largest emitting country for GHGs in 2019, IHS Markit
data show.
Posted 23 December 2020 by William Fleeson, Senior research analyst for Executive Briefings, IHS Markit