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Novatek's new China team tests local marketing of Russian LNG, sources say

Wed, 10th Jul 2024 09:41

SINGAPORE, July 10 (Reuters) - Russian natural gas giant Novatek's new China marketing arm is looking to sell a shipment of Arctic liquefied natural gas (LNG) as it attempts to penetrate the vast Chinese domestic gas market, traders with knowledge of the matter said.

Novatek began building a China-based team to explore marketing Russian fuel, Reuters reported in February, seeking new outlets as U.S. sanctions thwart plans for exports from its new multi-billion dollar Arctic LNG 2 project.

The marketing effort comes as Moscow scrambles to boost gas sales to China after exports to Europe plunged in the wake of Russia's conflict in Ukraine.

It makes Novatek one of the few global companies, along with BP and Shell, with a foothold in the massive but highly competitive wholesale gas market in China, the world's top LNG importer.

Novatek's China team is offering 15,000 metric tons of the super-chilled fuel, part of a 75,000-ton cargo sourced from its majority-owned Yamal project in the Arctic, that is due to arrive later this month, three China-based sources with knowledge of the matter said.

Novatek has sold the bulk of the shipment - around 60,000 tons - to Beijing Gas Group, the three sources said, although a fourth source said that Beijing Gas bought the gas from an intermediary, calling it a "pure domestic trade."

The sources declined to be named as the deals were not public.

Beijing Gas declined to comment. Novatek has not responded to a request for comment.

Novatek, which does not have any investment in China's LNG receiving facilities or distribution network, faces challenges marketing the fuel at attractive prices, traders said.

With growing domestic gas production and increasing piped gas supply from Russia, LNG dealers face thin margins in a Chinese market crowded with half a dozen state traders and more than a dozen "tier-two" importers such as ENN Group and Zhejiang Energy Group, many of which own stakes in receiving terminals.

"Even though the Yamal project or Novatek as a company is not under (U.S.) sanctions, this is a Russian cargo in the end so buyers would naturally expect a discount," said a south China-based senior trader, adding that Novatek began approaching buyers as early as April.

Novatek's new China operations include a Beijing office focused on marketing and business development, a Shanghai-based trading unit and a shipping arm, according to sources and Chinese business registration records.

While Novatek's new Arctic-2 LNG facility is largely stalled following U.S. sanctions imposed in late 2023, LNG shipments from its older Yamal project continue to flow to China and Europe under long-term contracts and offtake arrangements.

Most of China's LNG imports from Russia since the Ukraine war have come from Novatek's Yamal and Sakhalin Energy, which is controlled by Gazprom.

Chinese state energy giant CNPC and the state-owned Silk Road Fund own 20% and 9.9% respective stakes in the 16.5 million ton-per-year Yamal project.

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