SPIEF-2019 outcomes for marine industry

St. Petersburg International Economic Forum 2019 proved to be replete with news in shipping and stevedoring spheres. Most of agreements relate to the Arctic and Baltic basins which is no wonder given the fast pace of Arctic fields development and deficit of dry bulk transshipment facilities. 

NOVATEK steps on the gas

Special attention was paid at St. Petersburg International Economic Forum (SPIEF 2019) to the development of the Arctic fields and to sipping of products by the Northern Sea Route. First of all, it is about the NOVATEK project. The company is currently preparing for implementation of the Arctic LNG 2 project that foresees the Utrenny terminal construction in the Gulf of Ob. At SPIEF the company announced the entry of Chinese partners into the project. In particular, the Share Purchase Agreement was signed with CNOOC Ltd. in relation to the sale of a 10% participation interest in the Arctic LNG 2. 

Besides, NOVATEK signed the Share Purchase Agreement with wholly owned subsidiary of China National Petroleum Corporation in relation to the sale of a 10% participation interest in the Arctic LNG 2 project.

“The project (Arctic LNG 2 - Ed.) is highly sophisticated. It will feature less risks and more profit ... It is important to have the same partner in the Yamal LNG and the Arctic LNG 2 projects. Infrastructure we have created under the Yamal LNG project and we are going to create under the Arctic LNG 2 project will be common for the two projects. We understand, when the project partners have the same interests, their successful implementation is more likely”, Leonid Mikhelson, head of the Russian company, told journalists.

The transactions are expected to be completed in the nearest future upon obtaining of regulators’ approvals in the Russian Federation and in China.

The Arctic LNG 2 project envisages constructing three LNG trains at 6.6 million tons per annum each, using gravity-based structure (GBS) platforms. Shipping of that much product requires a large-scale shipbuilding programme and an efficient logistics. For that purpose, a four-party agreement to establish a joint venture Maritime Arctic Transport LLC was signed by PJSC NOVATEK, PAO Sovcomflot, China’s COSCO SHIPPING Corporation Limited, and the Silk Road Fund Co., Ltd. The focus of the Maritime Arctic Transport joint venture is to provide safe, year-round, transportation for LNG across the Northern Sea Route .

According to Leonid Mikhelson, the Arctic LNG 2 project will need 15-17 Arctic class gas carriers that can be built by Zvezda shipbuilding complex in the Primorsky Territory with the application of state support measures. The ships are to be delivered by 2026. 

“Shipping companies we will attract will order those ships at market prices, - specified the head of NOVATEK. – That won’t be Sovcomflot alone but everything will be managed by Maritime Arctic Transport … LNG-powered icebreakers will also be run by this company”.

While on the subject of using liquefied natural gas as a marine fuel it should be noted that Russian President Vladimir Putin earlier emphasized the necessity of its application in the Arctic to mitigate the negative impact on the environment. As of today, Sovcomflot is already operating Aframax tankers of the  ‘Green Funnel’ series.

At the St. Petersburg International Economic Forum, Sovcomflot and VEB.RF Group announced the signing of agreements whereby VEB Leasing will finance the construction of three new LNG-fuelled MR tankers. The tankers will be built by Zvezda Shipyard and they are intended to transport petroleum products and gas condensate, operating under 20-year time charter agreements with NOVATEK.

As regards bunkering, Sovcomflot signed a cooperation agreement with Gazprom Neft Marine Bunker. The bunkering company is going to build Russia’s first LNG bunkering ship.

The main LNG bunkering infrastructure will be developed in the Baltic basin being a part of emission control areas (ECAs). NOVATEK has already launched there its Cryogas-Vysotsk project that foresees LNG bunkering. Also Gazprom’s KS Portovaya project is being implemented in the region. 

Nevertheless, the Baltic LNG will be the largest LNG terminal in Russia’s Baltic area. The project investor is Gazprom. When speaking at SPIEF, Alexey Miller, Chairman of the Gazprom Management Committee, said that the project has entered the investment phase of implementation. According to him, an integrated facility for liquefaction and processing of natural gas at the port of Ust-Luga. The facility will have gas processing capacity of 45 million tonnes per year and liquefaction capacity of 17 million tonnes per year. High ethane percent in the supplied resources will also let build a gas chemical facility.

“So, there will be created an industrial cluster, unique in its potential on a global scale, a vertical system integrated into a unified system for supply of  ethane containing gas: supply, processing followed by LNG production on its base and supply of valuable components to gas chemical facility. In fact, it is Gazprom’s new economic model for monetization of crude hydrocarbons available for the company… Investment decisions have been taken for all phases of the project and all projects have entered investment phase of implementation”, emphasized the head of Gazprom.

As Kirill Seleznev, General Director of RusChemAlliance LLC (operator of gas liquefaction facility construction) said in his turn, the project has entered an active phase of implementation with the first turn of the project to be completed by the end of 2023, the second one – by the end of 2024. 

It should be noted in this context that in the framework of SPIEF, Gazprom and Rostec signed an agreement on cooperation in modification of the existing and creation of new gas turbine and gas transmitting equipment, production of equipment for LNG storage and transportation, production of offshore helicopters for oil and gas fields, application of composite and structural materials as well as introduction of digital technologies and addressing tasks of technological development and import substitution.  

Not NOVATEK alone

Similar interaction (via a joint venture) is being considered by other companies interested in shipping on the Northern Sea Route. At SPIEF, Russian Private Equity Fund (RPEF), Rosatom Corporation (infrastructure operator of the NSR) Nornickel (global leader in production of palladium and high quality nickel) and DP World (one of the largest port operators) came to an agreement on joint implementation of a project on comprehensive development of the Northern Sea Route. The parties will look into establishment of a strategic partnership in the form of a joint venture for the development of transit cargo flow through this sea route. 

For the first stage, the parties to the agreement will have to develop a strategy to increase the efficiency of the use of the NSR and to determine ways of developing transit traffic. The focus will be on linear transportation of containers and other bulk cargo along the Northern Sea Route.

Besides, it will be necessary to determine the amount of funding for the design and construction of an additional ice-class fleet and icebreakers, as well as the port infrastructure. A separate important area of work: ensuring industrial safety and environmental protection in the implementation of transportation along the NSR.

The parties agreed to establish a joint working group to conduct an analysis and prepare a feasibility study for the project within six months.

Moreover, an agreement on construction of an LNG terminal at the port of Poronaisk (Sakhalin) was signed in the framework of St. Petersburg International Economic Forum (SPIEF 2019) by Valery Limarenko, head of the Sakhalin Region, and Aleksey Kakhidze, BoD Chairman, Gazprom LNG Technologies LLC. There is a plan to build two turns of the plant, 5 tonnes of LNG per hour each. The first one is to be built in 2021-2022. The term for construction of the second one will be clear after the assessment of the first turn’s performance.

Dry cargo prospects

Russia is still lacks port facilities for transshipment of dry bulk cargo. Agreements signed at SPIEF covered this segment as well. 

Also, an important news announced at SPIEF was the completion of the project on Phase 3 of Vostochny Port’s terminal in the Primorsky Territory. With the project completion, Vostochny Port has doubled its transshipment capacity without involving any state resources. 

“Today we speak about 50 and even 55 million tonnes per year. That is a really unique project. In terms of boosting the throughput and in terms of private investments”, said Irina Olkhovskaya, First Deputy to General Director of Port Management Company LLC.

One more important event at SPIEF was the  financial closure of the concession project on creation and operation of Murmansk seaport infrastructure facilities. The project foresees the construction of Lavna coal terminal and dredging in the port’s water area. By 2022, the project is to achieve its design capacity of 18 million tonnes per year.

As for the Baltic area, the Forum saw the signing of an agreement between Primorsky Multipurpose Reloading Complex LLC (implementing a project on creation of a transshipment facility with annual capacity of 70 million tonnes at the port of Primorsk) and the port of Rostock (Germany). Representatives of the two ports are engaged in joint work on the feasibility study for dry bulk cargo shipping. For that purpose, they perform technical audit of the existing and designed seaborne and railway infrastructure at the approaches to port facilities in Primorsk and Rostock.

Besides, PhosAgro Group, one of the world’s largest producers of phosphate-based mineral fertilizers, and Ultramar, a Russian freight forwarder shipping mineral fertilizers in containers, signed a long-term contract on the transhipment of PhosAgro fertilizers through a new terminal that Ultramar is building in the port of Ust-Luga. The transhipment of PhosAgro products through the Ultramar terminal will begin in mid-2021. In accordance with the its long-term development strategy, PhosAgro plans to increase production of fertilizers and feed phosphates to 11.5 million tonnes per year by 2025.

Ultramar also signed agreements with URALCHEM JSC on transshipment of cargo and renting of storage facilities at the new terminal of Ust-Luga port. Upon completion of the terminal and obtaining of all approvals by the end of 2021, URALCHEM will be able to transship additional 2 million tonnes of cargo per year via Russian ports.

A significant point of stevedoring activities growth in Saint-Petersburg is Bronka port. A trilateral agreement on creation of Bronka Transport and Logistics Center was signed at Saint-Petersburg International Economic Forum. The document was signed by Russian Railways Board Chairman Oleg Belozerov, Acting Governor of Saint-Petersburg Akelsandr Beglov and Bronka TLC General Director Andrey Zaitsev. 

Bronka TLC project foresees the construction of a backbone railway infrastructure (7 lines with total length exceeding 7 km) including auxiliary facilities, road approaches, storage facilities, service points covering the area of over 310,000 square meters. 

Another agreement signed at SPIEF 2019 relates to construction of Vysotsk Grain Terminal at the port  of Vysotsk. The document was signed by Aleksandr Drozdenko, Governor of the Leningrad Regionm and Victor Chuikin, General Director of Technotrans LLC. Vysotsk Grain Terminal is to occupy 41 hectares in the water area of the Bolshaya Pikhtovaya Bay (Vyborg District). The construction of the grain terminal with annual capacity of 4 million tonnes (including 3.5 million tonnes of exports and 0.5 million tonnes of imports) is to be completed by 2022. Investments into the project are to exceed RUB 7 billion. The second phase is to be put into operation in 2023 with investments to exceed RUB 6 billion.

With people in mind

The Forum also touched some issues related to passenger transportation and water cruises.

An agreement was signed between Saint-Petersburg and Kaliningrad Region on cooperation in marine cruise tourism. The agreement foresees the creation of passenger shipping company that will let attract additional flow of Russia and foreign guests. The ships will enter all key ports of the Baltic Sea including Kaliningrad. Cruise liners and ferries are supposed to sail under the flag of Russia. The project is to involve Passenger Port St. Petersburg “Marine Façade” and Sovcomflot.

Summary

Thus, the agreements signed at the Forum, especially those regarding logistics on the Northern Sea Route, are likely to serve as milestones for a long-term perspective since they have been, at least partially, supported by the cargo base and state measures. 

As for agreements on new ‘paper-phase’ projects, their parameters can be changed several times while some projects may never be implemented at all.

Vitaly Chernov