Liquefied prospects

Russia, along with Qatar, Australia and the USA, will be among the world’s largest suppliers of LNG. However, its competitiveness should be improved through logistics optimization while LNG as bunker fuel can be quite expensive due to dependence on foreign technologies and equipment.

Looking for a hub

Although the industry of liquefied natural gas is quite old, extending back more than half a century, the interest to it has been growing globally during the recent years. It was driven by rapid development of the Asian countries, primarily China, where gas consumption has surged, and by the efforts of gas suppliers located far from the sales markets (first of all, Qatar) on creation of LNG facilities. Another factor contributing to the development of LNG consumption in some Asian countries (Bangladesh, Pakistan, etc.) was the growing number of FSRUs which provided those countries with a possibility of fast entering/withdrawal from the LNG market.

According to the findings of the research performed by Skolkovo Energy Center, “How Russia should use a window of opportunities amid transformation of the global LNG market”, there are more than 20 FSRUs in the world today with some 40 projects at different phases of implementation. The key advantages of floating storage and regasification units are the following: it does not take long time to put them into operation (less than a year, on the average) and it is possible to convert LNG tankers into FSRUs. As for construction of an on-shore regasification terminal, it takes at least five years and requires investment of about $1 billion.

Russia, which has been traditionally supplying gas under long-term contracts through a smooth-running system of pipelines, used to invest relatively small amounts into LNG infrastructure over the recent years. As of today, there are only two large scale LNG facilities in Russia – it is a plant of the Sakhalin-2 project and the first phase of the Yamal-LNG project. If all the plans announced in Russia are implemented, annual gas liquification capacity of the country can reach 80-90 million tonnes by 2030 which is comparable to the volumes planned by the key rivals of Russia.

The weakness of Russia’s LNG (especially when it comes to Arctic plants) is the expensive logistics and crucially high dependence on foreign technologies and components. 

Currently, there are three major centers of LNG production being developed in Russia: Arctic (yamal, Gydan), Baltic and the Far East. It is the Arctic where the most of production is expected: when fully operational, Yamal LNG project will produce 16.5 million tonnes of LNG per year, Arctic LNG-2 – 19.8 million tonnes per year. Arctic LNG-1 and Arctic LNG-3, if implemented, will add 39.6 million tonnes per year. So, LNG production in Russia’s Arctic region can exceed 70 million tonnes per year.

Implementation of all projects announced in the Baltic region, with Baltic LNG being the largest one, can ensure production of 12-13 million tonnes of LNG per year.

In the Far East, there is a production facility built under the Sakhalin-2 project. If the plans on modernization and construction of the third phase are implemented, it will produce about 16 million tonnes of LNG per year. There is also a plan, in the long term, to build a Far East LNG plant for production of some 5 million tonnes per year. Vladivostok LNG project will add some 1.5 million tonnes per year. So, the region will be able to produce up to 23 million tonnes of LNG per year.

One of the ways to raise the competitiveness of Russian LNG is to create a gas hub able to concentrate considerable volumes of gas for distribution among the sales markets.

NOVATEK has a plan to create an LNG reloading complex in Petropavlovsk-Kamchatsky with capacity of 20 million tonnes. The facility due to be ready by 2023 would transship LNG from Arctic tankers to the conventional ones. That would let decrease the expenses for LNG transportation from the Arctic but a considerable part of the route will anyway run along the NSR featuring a seasonality and entailing icebreaker support expenses. Similar transshipment point is supposed to appear in the port of Murmansk. If Russia builds a sufficient number of Leader-type icebreakers (it was earlier announced that Russia will need three icebreakers of this type) capable of round-the-year operation and leading large convoys of ships, the cost of transportation could be decreased.

Bunker prospects

The prospects of using LNG as a bunker fuel are primarily associated with the Baltic Basin as it is a part of the sulphur emission control area (SECA). Some LNG projects announced in the Baltic region (at the ports of Vysotsk and Saint-Petersburg) are small scale projects focused on bunkering. The key factor here is the price of LNG. To ensure competitiveness it should be somewhere between the price for heavy fuel oil and the price for diesel fuel.

Taking into consideration the data from open sources, the price of LNG (per tonne of oil equivalent) transported from Baltic LNG to Europe will be as high as about $200. If regasification and transportation costs are excluded, the cost of production and liquefaction will make about $163 pmt. With the current price of $330 pmt for heavy fuel oil and $607 pmt for diesel fuel sold in Saint-Petersburg this LNG price will ensure a competitive price of product offered to vessels. Yet, it should be note here that these calculations are correct for large scale production while the projects announced in the Baltic region are not large. Besides, they apply foreign technologies and equipment. Therefore, the price can prove to be much higher. This price can also be increased with the expenses of bunkering companies for construction of infrastructure and ships supplying LNG bunker.

The potential of further LNG price reduction in Russia is based on the development of Russian liquefaction technologies and localization of key equipment manufactures. It is also necessary to launch serial construction of LNG carriers and LNG bunker-supply ships in Russia. Construction of large capacity gas carriers is supposed to be arranged at the Zvezda shipbuilding center. As for LNG bunker-supply ships, Russia’s Ministry of Industry and Trade is implementing its own project “Development of gas-fuelled fleet for navigation in coastal waters and inland water ways”. Implementation of the project (its publicly-funded part) is a part of the state programme “Development of shipbuilding and facilities for offshore fields, 2013 – 2030”.  Read more in our article >>>> 

If Russia does not develop its own technologies and does not produce basic equipment, LNG industry development in the country will bring no sense for the national economy since the revenue from LNG sales will be overlapped by expenses for purchase of foreign technologies and equipment.

Vitaly Chernov

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