• 2015 May 22

    Yamal LNG: still up in the air

    Oil & gas companies enter the ‘final straight’ in implementation of projects on development of Yamal based hydrocarbon fields involving maritime transportation. At the same time, Yamal development is associated with numerous risks including reduction of oil and gas prices, competition in LNG market, dependence on foreign-made equipment and global warming.

    Chinese modules for Russian Arctic 

    Yamal LNG project implies the construction of an LNG plant with annual capacity of 16.5 mln t. Each of the three phases will be able to produce 5.5 mln t of LNG per year. They are to be put into operation in 2017, 2018 and 2019 accordingly. As Yamal LNG Director General Yevgeny Kot told at the 4th international conference Yamal Neftegaz arranged by Vostock Capital in Salekhard, it was decided to apply modular technology for the construction. According to him, the advantage of this solution is the reduction of construction terms by up to 1.5 years. Besides, there is no need to build the facilities in rough environments of Yamal or to involve considerable labour force. Nevertheless, this brings other challenges related to the delivery of large-sized modules weighing up to 7,500 t and measuring 30x30x5 m each. The modules being produced by eight yards in Asia, mostly China, will be transported to Zeebrugge (Belgium) and then to Sabetta, where they are to be unloaded onto a dedicated berth for further transportation by a strengthened road. Then they will be assembled at the construction site onto a prepared foundation. Total weight of the modules is about 450,000 t. Technip is in charge of the project’s engineering support.

    Large-sized modules for LNG plant under Yamal LNG project will be delivered by COSCO and ZPMC-Red Box Energy Services, IAA PortNews journalist cites Dmitry Monakov, First Deputy Project Director at Yamal LNG, as saying at the Conference. It should be noted that Red Box will additionally build two specialized 28,500 DWT vessels of Arc7 class. Steel-cutting ceremony was held in November 2014 at Guangzhou Shipyard International (GSI, China). First modules are to be delivered to Yamal by autumn 2015. By the end of 2015, the project’s general readiness is to reach 45%.

    According to Yamal LNG Director General, the project LNG has already been contracted under long-term agreements. However, Yamal LNG OJSC has to search for alternative sources of project financing amid the U.S. sanctions while the company’s shareholders continue financing the project with their own sources, By today, they have invested over $9 bln. Major financing is supposed to come from the financial institutions of China (some $15 bln). Total investments into the project are estimated at $27 bln.

    Yevgeny Kot said that the sanctions had not influenced the supplies of equipment and technologies under the project.

    According to the Conference report of Yuliya Chebotareva, representative of Yamal-Nenets autonomous region’s authorities, the second LNG plant under Yamal LNG project with annual capacity of 16.5 mln t is to be built by 2025. The plant will be based on the feedstock resources of the Salmanovskoye and Geophizicheskoye fields. The construction terms will depend on the economic situation.

    Yevgeny Kot thinks a hub for LNG production and shipment can be created at port Sabetta “The resource potential is sufficient to produce up to 70 mln t of LNG near Sabetta”, he said.

    As Dmitry Kobylkin, Governor of the Yamal-Nenets autonomous region, told journalists at the conference, port Sabetta will later be able to handle other types of cargo like the products of metal companies. This activity will be facilitated by a branch line of the Northern Latitudinal Railway, the project of which has been recently approved by RF Government. 

    Novy Port's oil

    Apart from Yamal LNG, Yamal fields are in the focus of Gazprom aiming at maritime transportation. By the end of 2015, the Company is expected to put into operation an export terminal at Cape Kamenny for round-the-year shipment of crude oil from the Novoportovskoye field. The terminal’s capacity is up to 8.5 mln t per year. The field and the terminal will be linked by a 100-km long pipeline.

    Denis Sugaipov, Head of Major Projects at Gazprom Neft, says the Company is going to invest over RUB 455 bln within the 5-year period into the development of the Yamal fields. By today, the investments exceeded RUB 125 bln.

    To transport hydrocarbons the Company is building its own fleet - 8 ice-class tankers and two supply vessels. As of today, the Company’s fleet numbers 2 ice class ships and 5 tankers assisted by icebreakers of Atomflot FSUE. 

    As Aleksandr Mitrofanov head of the engineering and technical center of Vostock Capital, said at Yamal Neftegaz conference, the company is going to drill 21 wells at Yamal up and through 2018. He said, the year of 2016 is to see the commissioning of 11 wells, 2017 - 7 wells and 2018 - 3 wells. The scope of exploratory drilling is to exceed 51,800 m. Besides, Gazprom Geologorazvedka LLC is going to build an artificial island in the Sharapov Shar Bay (Yamal) by the first quarter of 2017.

    One drop of poison infects the whole barrel

    Anyway, the success of all projects on HTR reserves in the Arctic depends of oil prices which are highly volatile today.

    As for LNG, the competition in this market is likely to be very tough as we wrote before >>>> .  There is no guarantee that LNG produced at Yamal will be in demand in terms of prices and volumes supposed by investors, even despite long-term contracts and participation of the Chinese capital in the project. The customers, including those in China, see the advantages of LNG in the ability to purchase it at spot prices from different suppliers worldwide. Such players as Qatar or Australia can manipulate this market. The customers are not likely to pay more if the prices falls considerably.

    Another risk is associated with the high dependence of Russia on foreign equipment and technologies. According to the report of Vasily Bogoyavlensky, Deputy Director of the RAS-affiliated Oil and Gas Research Institute, the share of foreign equipment in oil $ gas projects is as high as 95%. Russia is also in need of drilling units and geodesic fleet. The expert says Russia currently has only 3 out-of-date ships for three-dimensional seismic survey. However the vessels for two-dimensional survey are in excess.

    Moreover, scientists are concerned about the global warming. Anton Sinitsky, head of the geological sector of Gazprom VNIIGAZ’ regional center in the YNAR (Yamal-Nenets autonomous region), warming by only 2 centigrades threatens to change the landscape of the peninsula. The scientist warns that Yamal is not a “land” as we are used to understand it. It is a combination of ground and ice. Ice melting can lead to sinking of land and similar phenomena. According to the registered data, Yamal annually loses about 1 meter of its territory due to sea approach. Also, opening of ice-walled craters is observed on the Yamal peninsula. Some scientists believe they can be caused by an explosion gas hydrates.

    Thus, the development of Yamal, so called Russia’s petroleum store, involves high risks which should be taken into consideration.

    Vitaly Chernov

    Photo release from the 4th international conference Yamal Neftegaz >>>>