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Russia extends LNG supplies to German player until 2040

Russia’s Yamal LNG project is now able to continue exporting liquefied natural gas to Germany’s SEFE after Moscow extended its exemption from sanctions imposed against the company.

SEFE was previously known as Gazprom Marketing & Trading, a subsidiary of Russian gas giant Gazprom that managed most of the parent company’s gas exports to Europe and also traded third-party LNG cargoes.

Its name was changed to SEFE after the German government took control of the company following Russia’s invasion of Ukraine almost two years ago.

The Kremlin banned all Russian companies from dealing with SEFE after it was created in mid-2022, but issued a temporary exemption for the Novatek-led Yamal LNG operator, which has a long-term contract with the German company to supply 2.9 million tonnes per annum of LNG —about 15% of the total project’s output.

The original extension was due to expire late this year, but has been extended to 2040 by Russian Prime Minister Mikhail Mishustin.

Yamal LNG will now continue to supply LNG to SEFE beyond the end of the 20-year contract between the German company and Gazprom, which started in 2018, shortly after Yamal LNG’s first train was commissioned at the end of 2017.

Imports from Yamal LNG escaped being targeted by international sanctions against the Russian energy sector in response to Russia’s invasion of Ukraine.

Mehdy Touil, LNG operations specialist at Canada’s engineering and project solutions player Solaris MCI, said that Novatek is continuing a strategy of projecting that a “normalization” of its relationships with the “collective West” has always been on the table.

The extension of the contract with SEFE is a reflection of that sentiment at Novatek’s top management.

SEFE is Germany’s leading gas importer and distributor, and the extended contract with Yamal LNG will enable it to continue supplying LNG to India under a long-term deal with the Indian gas company Gail.

It will help enable SEFE to avoid new arbitration claims from Gail.

SEFE is contracted to supply Gail with about 2.9 million tpa of LNG — the same volume it receives from the Yamal LNG.

However, Gail filed an international arbitration claim in the UK against SEFE last year after Gazprom refused to deliver cargoes from Yamal LNG to the German company between the second half of 2022 and in the first half of 2023, with SEFE in turn unable to supply the Indian player as spot LNG cargoes from the US sailed to Europe to satisfy strong demand on the continent.

At the end of November last year, Gail said in a disclosure that it is seeking $1.82 billion in damages from SEFE for the non-delivery of the contracted LNG cargoes, arguing that the German gas player could have fulfilled its commitment by purchasing cargoes from the spot market.

SEFE has been contacted fro comment.

Putin’s refreshes gas supply offer

Mishustin’s decision to extend Yamal LNG’s exemption came as Russian President Vladimir Putin offered to resume pipeline gas supplies to Western Europe, which were reduced to a near-halt in the second half of 2022.

Speaking from Moscow during an interview with a former US talk show presenter last week, Putin said that as soon Germany grants its approval, Gazprom is prepared to restart gas supplies to Germany via a remaining, undamaged, line of the Nord Stream 2 subsea pipeline.

Both Nord Stream 1 lines and the other Nord Stream 2 line were damaged by explosions in September 2022 and have not been repaired.

The undamaged Nord Stream 2 line may be able to deliver about 75 million cubic metres per day of Russian gas to Europe.

From January next year, Gazprom may lose its remaining pipeline gas supplies to Europe which tranist Ukraine.

The transit supplies currently amount to about 42 million cubic metres per day of gas, but Ukrainian officials have said that Gazprom’s current five-year transit contract, which is due to expire soon, will not be renewed.

Source: Upstream