Chemical prospects of special zone in Ust-Luga

A Special Economic Zone is to be created in the Port of Ust-Luga, the Leningrad region. Two companies of Gazprom and RusGazDobycha will replace Baltic LNG as beneficiaries. The construction works will be performed by a Chinese company. The cluster is to produce 13 million tonnes of LNG and up to 2.4 million tonnes of LPG per year, as well as other gas products.

The Ministry of Economic Development of Russia has developed a draft Order of RF Government on establishment of a Special Economic and Industrial Zone (SEZ) in the Kingisepp district of the Leningrad region. The explanatory note to the document says that written confirmations have already been received from two potential residents of the SEZ Territory Planning Projects "Ust-Luga" about their plans to implement their investment projects, namely Baltic Chemical Complex (BCC) and Gas Processing Complex (GPC). The projects investors are Gazprom and RusGazDobycha, a company of RusChemAlliance.

The projects are aimed at processing of gas delivered by main gas lines of Gazprom. The products are to be exported and supplied to the domestic market.

The potential SEZ residents say they intend to invest over RUB 2.2 trillion in 2022-2031. No budget allocations are foreseen under the SEZ project.

According to the project investors, BCC foresees the construction of a polyethylene production facility in the Kingisepp District of the Leningrad Region with annual production capacity of 3 million tonnes. BCC is to process ethane fraction produced by GPC. The long-term agreement between the two projects guarantees the supplies to BCC for at least 20 years. The products will be sold both in Russia and exported by sea via the port of Ust-Luga to Europe, non-CIS countries, South-East Asia, India and China. EPC contractor is Chinese company CC-7. The complex is to be put into operation in 2025.

GPC, in its turn, is to become the major gas processing facility in Russia and the largest LNG producer in Northwest Europe. The complex is to process 45 billion cbm of gas, produce 13 million tonnes of LNG, up to 3.8 million tonnes of ethane fraction, up to 2.4 million tonnes of LPG and 0.2 million tonnes of pentane-hexane fraction per year. Gas remaining after processing (some 19 billion cbm) will be supplied to gas pipeline system. Phase 1 of the complex is to be put into operation in the fourth quarter of 2023, Phase 2 – in the fourth quarter of 2024. The construction began in 2020.

As of today, there are only small-scale LNG projects in the Baltic Basin: Novatek’s Cryogas-Vysotsk which is operating already and Gazprom’s KS-Portovaya which is still under construction.

It should be noted that creation of special economic and industrial zones close to ports is normal practice worldwide which has not been widespread in Russia due to various reasons. As of 12 October 2021, the list of SEZ residents numbered 302 companies. There are 23 special economic and industrial zones in Russia with LOTOS SEZ focused on shipbuilding being the only one located close to a seaport.

Special economic zones offer some competitive advantages to businesses including lowered administrative barriers, tax and customs privileges, reduced prices for purchase and leasing of land.

Moreover, in October 2020 reverse excise duty was approved for ethane and LPG which also stimulates the development of gas processing projects. Apart from Ust-Luga, gas-to-chemicals projects are being implemented at Irkutsk Polymer Plant (INK Group), Amur Gas Chemical Complex (Sibur), Ob Gas Chemical Complex (former Obskiy LNG, Novatek) on the Yamal peninsula near the port of Sabetta. Investments into gas chemical projects are expected to exceed RUB 3 trillion by 2030.

A course on gas chemical projects was laid in view of active development of gas production and liquefaction with the purpose to ensure higher added value of the product.

As for LPG export prospects, Aleksey Markov, Hydrocarbon Marketing and Sales Director, SIBUR, said at online conference “Argus LPG 2020: Non-CIS and Global Markets” that LPG production in Russia is expected to grow by 52.7% to 22.6 million tonnes in 2026. “Organic growth of LPG is expected from conventional refineries, from companies developing new projects, particularly Rosneft and new players, Gazprom and RusGazDobycha in Ust-Luga”, said Aleksey Markov.

The development of LPG export potential will let advance in the promising market of China where LPG from the USA is dominating.

Today, Russian LPG is handled at the ports of Temtyuk, Taman and Ust-Luga.

According to Deloitte analysts, gas and oil chemical companies have quite good prospects of long-term development despite the COVID-19 crisis if they invest in new technologies.

By Vitaly Chernov

news@portnews.ru

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