Russian gas independent Novatek has revived long-discussed plans to supply liquefied natural gas to the remote Kamchatka Peninsula in the country’s far east as it targets a possible stake in the Gazprom-led Sakhalin 2 development.

Kamchatka’s has an estimated demand of 600,000 tonnes per annum of LNG that would be used to replace the fuel oil used for energy generation and heating.

Regional authorities currently have to buy and import fuel oil at market prices, but electric energy and heating costs are capped by Russia’s central government.

LNG supplies could also be used as a substitute for declining pipeline gas supplies from state-controlled Gazprom that are sourced from two legacy fields in the west of the Kamchatka Peninsula.

Gazprom has so far been unsuccessful in its attempts to identify additional reserves to help reverse the decline in gas output at the fields — the sole source of gas on the peninsula.

According to state news agency Tass, Russian President Vladimir Putin has backed the LNG supply proposal and last week ordered the government to prepare a plan estimating the costs and timeline required to build the necessary infrastructure to unload LNG carriers on Kamchatka and supply gas to the existing networks by the start of 2025.

Regulated gas price issue

The plan is to be presented for the consideration and approval by 1 February 2023 and will have to take into account a set limit on production and transportation costs, as Putin’s order calls for the imported gas to be sold to customers at Kamchatka at the government-regulated price.

Balancing the regulated gas price with the high transportation costs and initial pipeline investments had previously put a brake on a Novatek’s plans to deliver gas from West Siberia to the Kamchatka regional capital of Petropavlovsk-Kamchatsky.

Novatek’s planned LNG transshipment and storage facility is still anticipated to come online by end of 2023.

However, an earlier plan to build pipeline from its location at Bechevinskaya Bay on the eastern part of the peninsula to Petropavlovsk-Kamchatsky, about 75 kilometres away, had been dropped.

The new facility is planned to load LNG from a limited number of Arctic-class LNG carriers with icebreaking capability to conventional gas carriers.

The Arctic-class carriers would be carrying volumes from the Novatek-led Yamal LNG in West Siberia and its neighbouring Arctic LNG 2 development once it comes online.

Earlier this year, Moscow-based news agency Interfax quoted Novatek executive chairman Leonid Mikhelson as saying that the company is prepared to bankroll the construction of a regasification terminal near Petropavlovsk-Kamchatsky and two dedicated shuttle LNG carriers at estimated cost of 28.7 billion rubles ($455 million).

The sea route between Sakhalin 2 LNG plant at Prigorodnoye and the planned terminal at Petropavlovsk-Kamchatsky is about 1500 kilometres, less than a quarter of the distance between the Kamchatka transshipment terminal and the port of Sabetta on the Yamal Peninsula that handles volumes from Yamal LNG.

Mikhelson had earlier confirmed that, after conducting an extensive audit of Sakhalin 2, Novatek is ready to consider bidding for a 27.5% stake in the project previously held by UK supermajor Shell but now in government hands.

Sakhalin 2 was reported to have produced close to 11 million tonnes of LNG last year against its nameplate capacity of 9.6 million tpa.

The project is understood to have long-since repaid shareholders’ initial investments and is being operated under a preferential stable tax regime guaranteed by its production sharing agreement with the Russian government.

Novatek has not commented on its Kamchatka plans at the time of publishing.