Kremlin opts for liquefaction

Having announced the cancellation of the South Stream project Russian President Vladimir Putin emphasized the acceleration of LNG projects in Russia.  Yet, the majority of them exist only on paper so far.

Every little VIOC helps

Russia has cancelled the construction of the South Stream gas pipeline supposed to bypass Ukraine running across the Black Sea, Russian President Vladimir Putin says. According to him, the decision will ensure accelerated implementation of projects involving liquefied natural gas (LNG). LNG can be supplied by marine transport without involving pipeline systems.

Boosting LNG production has been under discussion for a long time in Russia though in reality the country has only one plant for LNG exports, a Sakhalin-based facility with annual capacity of 9.6 mln t of LNG. In October 2014, Gazprom and Shell took joint decision on expansion of LNG plant under Sakhalin II project. The project on construction of the plant’s third phase is to be ready by Quarter III’ 2015.

Russia is currently implementing the Yamal LNG project which envisages the construction of an LNG plant with annual capacity of 16.5 million tonnes per annum based on the feedstock resources of the South-Tambeyskoye field (Yamal Peninsula). Port Sabetta is projected to be a hub for shipment of liquefied natural gas eastwards and westwards by large capacity gas carriers through the Northern Sea Route.

Other Russian projects on exporting LNG exist only on paper so far. The majority of them are concentrated in the Baltic Basin. Gazprom announced its plans to build a large export plan, Baltic LNG near Ust-Luga (Leningrad region). The first phase of the 10 mln t plant was supposed to be built in 2018, now it is postponed till 2019.

Besides, on November 26, 2014, Cryogas CJSC (100% owned by Gazprombank) signed an agreement on construction of a 660,000 tonne LNG terminal near port Vysotsk.  Cryogas-Vysotsk firm has already been registered in the Vyborg district and preparatory work on the project is underway.

Moreover, Rosneft is in preliminary negotiations on the location of an LNG complex at the Gulf of Finland. Several possible locations are considered in the declaration of intent: Gorskaya district of Big Port St. Petersburg as well as Vysotsk and Ust-Luga seaports. 

There are also projects announced by investors not related to vertically integrated oil companies (VIOCs). For example, Nordic Yards has stated its willingness to build and LNG terminal in Saint-Petersburg (near Gorskaya). Also, there are other investors interested in creation of LNG facilities in the Baltic region.

Apart from the Baltic and Yamal projects, construction of LNG terminals is under consideration in other regions as well. Under the project in the Nenets autonomous region, a floating LNG plant is to be built in the area of Indiga, with a 300-km-long pipeline linking it with deposits in the Pechora. Port Indiga was planned as a deep-water port with depths of about 17 m. The project investors are Alltech Group and Rosneft.

As for the Far East, in November 2013 Vladimir Miklushevsky, Governor of the Primorsky Territory, and Gazprom CEO Alexei Miller signed a Memorandum of Understanding (MoU) and cooperation agreement for implementation of the LNG plant construction project in Primorye. Investments into the project are estimated at $13.5 bln. The construction is to commence in December 2014. 

Reality and ambitions

Analysts are skeptical about economic viability and competitiveness of some projects. Indeed, such Far East projects as Vladivostok LNG can prove to be uncompetitive with their product prices as compared with that of other suppliers from Australia, Canada, Qatar and the USA. 

As for the Arctic projects, their profitability depends on preservation of state preferences, analysts say.

The Baltic Basin has a more advantageous position due to the North Stream pipeline and absence of extreme climatic conditions. Moreover, restrictions on sulphur content in ship fuel coming into effect in the Baltic and North Seas from January 1, 2015 and setting a limit of 0.1% will facilitate supplies of LNG as marine fuel.

However, Gazprom head Aleksey Miller says the share of liquefied natural gas (LNG) in total sales of gas at the global market is not likely to change in the midterm period – it will remain at the level of 30%. In his opinion, LNG has failed to become a global integrator of gas market, just like shale gas has.

Vitaly Chernov