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2018 December 21

Phantoms of Russian infrastructure – 2018

The deficit of budget resources has expectedly lead to reduction of infrastructure projects. The state and the private business has focused on the priority projects. However, some plans are still “in the air” and their prospects are not clear.

Vague Baltic

The outgoing year can be certainly called “a year of liquefied natural gas”. That is because active implementation of the Yamal LNG project and approaching sulfur cap of 0.5% for marine fuel which is to come into effect worldwide (excluding ECAs). Being an ECA, the Baltic Sea has long been considered as a promising area for LNG terminals, both export and bunkering ones. Yet, there are no terminals in operation there though several projects had been announced.

The first projects to be implemented in the region are Cryogas-Vysotsk (Investor – Novatek) and CS Portovaya (Investor – Gazprom).

The first turn with annual capacity of 330,000 tonnes is to be put into operation in Q1’2019. As part of the project, an electric power substation Cryogas (110/10 kW) was launched in July 2018.  The project CEO Richard Rudnitsky told IAA PortNews that construction of a berth for LNG bunkering is foreseen.

As for the project on construction of a facility for production, storage and shipment of LNG near Portovaya compressor station, it was to be completed by the end of 2018 but open sources say the deadline seems to be missed.

The Baltic LNG project with a design capacity of 10 million tonnes of LNG per year has made less progress. This project has been under discussion for several years already. The recent news are the following: on 13 December 2018, Gazprom and Itochu signed Memorandum of Understanding on Baltic LNG project. Itochu Corporation is one of Japan's largest general trading companies. It is engaged in oil & natural gas production and processing and LNG projects. Similar agreement was signed with Mitsui & Co., Ltd. in September. Heads of the Joint Venture Agreement was signed with Royal Dutch Shell in May. Investments into the project are estimated at RUB 660 billion. Baltic LNG is to be put into operation in 2022-2023.

Among the “exotic” projects is LNG Gorskaya announced earlier. It foresees the creation of a floating complex able to produce 1.26 million tonnes of liquefied natural gas per year. It is to have its own pier, a loading facility and LNG storage facilities as well as a fleet of bunkering vessels in Russia and some Baltic states. According to recent information, the project initiators were looking for a strategic investor. It seems they have not succeeded as there are no news about it.

Apart from LNG, a terminal for transshipment of mineral fertilizers at the port of Ust-Luga has been under discussion for a long time. Absence of dedicated deep-water terminals in Russia results in dependence on Baltic states’ ports. EuroChem announced its plans to build a terminal several years ago but the project was frozen 2017, at least till the end of 2018.

The same plans (construction of a terminal for mineral fertilizers Ust-Luga) have been announced by Uralchem and Ultramar. The capacity of the terminal is to make 12 million tonnes per year. It should be noted, that Ultramar has already had an experience of handling mineral fertilizers in Ust-Luga: together with Phosagro it launched a Smart Bulk Terminal in 2015 (At the premises of Yug-2 terminal). However, it is not a dedicated terminal. Smart Bulk Terminal was intended for handling mineral fertilizers in containers.

A project on construction of a dry cargo area at the port of Primorsk with annual capacity of 36 million tonnes (mineral fertilizers, metal scrap, grain) have clouded prospects. Investments were estimated at about RUB 70 billion. Federal Marine and River Transport Agency (Rosmorrechflot) has approved a Declaration of Intent on the project. Perhaps, the project will be revived when construction of the Losevo-Kammenogorsk railway branch is completed. In August 2018, RF Government ordered to allocate additional RUB 1.79 billion for construction of that branch.

Iron Arctic

The outgoing year has seen an intensified attention to the Arctic. Yamal LNG, the largest project in the region is gaining momentum and puts its facilities into operation ahead of schedule. In this context, the idea of cargo flow diversification via Sabetta and development of approaches to the port has been brought up again. 

It should be reminded that the two main railway projects in the region are the Northern Latitudinal Railway and Belkomur. A positive decision has been made on the first one with the latter being in a more difficult situation. 

In May 2018, Eurasian Development Bank said it will provide the Belkomur project with a RUB 278 billion loan. 

In December 2018, Prime Minister Dmitry Medvedev ordered to include the Belkomur project in to the Strategy or territorial development of the Russian Federation and into the Comprehensive plan for upgrading and expanding core infrastructure.

Anyway, this project still remains on paper and can be listed as “phantom”. 

The Belkomutr project is interlinked with the project on development of Arkhangelsk port’s deep-water area. In June 2018, deepwater area of the port of Arkhangelsk project successfully passed the expert "infrastructure test drive" held within the framework of the All-Russian Water Congress in Moscow. The project foresees the construction of a state-of-the-art transport & industry hub comprising four multipurpose and two dedicated terminals with aggregate capacity of 38 million tonnes per year by 2035, as well as a highway and a railway. Morstroytechnology (Marine Construction and Technology) LLC estimates the potential cargo base of the deep-water area at 27 million tonnes per year without taking into consideration other infrastructure projects while implementation of the Northern Latitudinal Railway and Belkomur projects may attract additional 9 million tonnes of potash fertilizers and up to 10.2 million tonnes of oil and gas per year. So, the project can be implemented without Belkomur.

One more project depending on the Arctic’s railway infrastructure is the project on construction of a port in non-freezing bay of Indiga. Earlier, there was a plan to place a floating LNG storage facility. Then the plans transformed into a project on construction of multiprofile port with several terminals including coal, oil, LNG and multipurpose terminals with an aggregate capacity of 35 million tonnes per year. According to the recent statements, the coal terminal is to have a capacity of 50 million tonnes of Kuzbass coal. Investments into the coal terminal are estimated at RUB 258 billion with RUB 198 billion of budget resources. The appetite on Indiga is growing from year to year while the chances for the project implementation are decreasing in inverse proportion: enormous budget investments and the necessity to build railway approaches in Arctic conditions shift these plans to the list of “phantom” projects.

Switching off from a subject related to railways we can recall an ambitious Arctic “phantom” - the project on development of the Shtokman gas condensate field. As it is well known, the project was frozen long time ago but Gazprom representative repeat again and again that its implementation in the future is not ruled out. When speaking at the Neftegazshelf-2018 (Moscow, December 2018), Vadim Petrenko, head of Gazprom administration, said that Gazprom has found efficient technical solutions for implementation of the Shtokman development project. According to him, the company is currently working on reduction of capital costs under the project and on defining the range of its product consumers. This suggests that no feasibility study of the project has been performed yet.

Besides, there are plans on construction of coal terminals near Dickson. Coal terminal “Chaika” able to handle 10 million tonnes of coal (anthracite) per year is intended to ship coal produced at Lemberov River field. Its resources are estimated at 280 million tonnes. One more terminal, “Bukhta Sever” is to be built 20 km off the Chaika terminal. Its annual capacity is to make about 10 million tonnes as well. The projects investor is VostokCoal.

The construction of the mentioned terminals can also be included in the list of “phantom” projects since first shipments of coal from Chaika were scheduled for June 2017. It was only in December 2018 that Energy Minister Aleksandr Novak suggested looking into dredging works under those projects.

Distant horizons

In the Far East, the project of the United Grain Company (UGC) on construction of a transshipment facility at the port of Zarubino (Primorsky Territory) is still among the “phantoms”. There is a plan to build a terminal for transshipment of grain (wheat, corn and soya) with a design capacity of 33.5 million tonnes per year. The capacity of the first phase is 3 million tonnes with a possible expansion to 10 million tonnes per year.

However, implementation of this project is up in the air because of the arrest of Magomedov brothers, co-owners of Summa Group. One of them owns 49% of UGC.

Besides, a coal terminal of Tuva Energy Industrial Corporation CJSC is to be built at Vanino port. The project is associated with the development of the Elegest coal field in the Republic of Tuva. The project is focused on ensuring annual exports of up to 15 mln t of coal from the Elegest field. The railway is to be 410 km long. The terms of the project implementation will depend on the railway construction. It is to take 4.5 years and to be completed in 2022. 

RF Government’s Decree dated 17 April 2018 (No 687-р) approved signing a concession agreement with TEIC Kyzyl-Kuragino, which is essential for lunching the private concession mechanism. Public railway facilities will be built under the concession agreement as part of the project “Construction of Elegest-Kyzyl-Kuragino railway and a coal terminal in the Far East for development of the mineral resources base in the Tyva Republic”.

Among the “phantoms” we earlier mentioned the project of Holding Company “SDS” to build a state-of-the-art sea terminal of closed type for coal exports to the Asia-Pacific region: Korea, India, China, Japan (20 million tonnes per year). This year has seen real advances with obtaining a status of Free Port of Vladivostok resident in May 2018, Russian Railways joining the project and ground works beginning at the site. The project is to be implemented by 2022 with investments estimated at about RUB 35.5 billion.

In general, the number of “phantom” projects is decreasing due to reduction of budget financing, tougher requirements of projects selection and inclusion in strategic development plans.

Vitaly Chernov