2022 September 19
Russian liquefied petroleum gas (LPG) and methanol used to be mainly bound for Europe. However, Russia lacks dedicated port facilities. The bulk of seaborne methanol exports and a considerable share of LPG exports goes via Finland and can be blocked any time.
Although the share of ports in the Baltics and Finland in the total exports from Russia made only 2.4%, some types of cargo are still highly depended on foreign ports.
The bulk of methanol exported by sea transport goes via the Finnish port of Hamina-Kotka where several terminals have been built recently with Russian capital. Among the latest is the terminal of Shchekinoazot. It was launched in summer 2021.
As Lola Ogrel, Project Director at the Analytical Center of Russian Energy Agency, RF Ministry of Energy, said at the 17th International Conference “Methanol 2022” held in Saint-Petersburg with participation of IAA PortNews, methanol transit via Finland was suspended for four days in March. Russian methanol website primarily bound for European countries: Finland, Poland, Netherlands, Slovakia and Romania.
Obviously, exports to Europe are at risk in the current situation. On the other hand, there are other promising directions. In the first half of 2022, methanol exports to Turkey surged 8.5 times having totaled 50.5 thousand tonnes.
“Supplies could be higher if Russia had normal port infrastructure for methanol handling,” said Lola Ogrel.
It should be noted that Russia has only one terminal dedicated for methanol shipments in the Far East. It is Eastern Petrochemical Terminal in Vostochny port. It actually handled no methanol in H1’22, only oil products were shipped.
In the Southern Basin, there are two terminals engaged in methanol handling: Cargochem in the port of Temryuk and YugNefteHimTranzit in Kavkaz port. The two terminals handle small volumes, about 100 thousand tonnes with no surge seen in the first half of the year.
As for supplies of Russian methanol to the largest market in terms of methanol consumption, the APR, they are not currently performed due to problems with logistics: railway capacity is limited while transportation via the North-West and South is long and expensive. Besides, there are no sufficient port facilities there.
In the first half of 2022, exports of methanol from Russia rose by 22%. However, a decrease is expected in the second half of the year amid the fall of demand for methanol in Europe.
Russia’s methanol production capacity makes 5.5 million tonnes per year with exports accounting for about 2 million tonnes.
LPG situation is similar to that of methanol. In 2021, Russia exported 4.6 million tonnes of LPG. According to Leonid Kruchinin, Deputy Director for Marketing at Impexheftehim, who spoke at Petersburg International Gas Forum-2022, Russia needs to export at least 200 thousand tonnes of LPG per month to prevent dramatic oversupply.
Until recently, LPG exports were arranged to Finland, Poland and Ukraine which is not possible now. Exports to Hungary and Slovakia are hindered by logistics. Southwards exports to Georgia, Armenia, Afghanistan and Middle Asia are complicate by high competition with Kazakhstan’s LNG exports.
As for supplies to the Asia-Pacific Region, it is also challenging in terms of logistics. LPG can be exported via Ust-Luga but this brings up the question of ships availability and the cost of chartering. Besides, the Far East region lacks the dedicated handling facilities.
“We can load a ship in Ust-Luga and direct a supertanker to the South-East Asia and it could be a solution of the sale to the market deemed infinite. However, economically this decision is affordable only for those managing and balancing their own gas, those being aware of advantages from observance/non- observance of such a balance ... That is SIBUR, of course... Either propane or butane can be shipped to China. However, we have few companies able to produce propane or butane of high quality ... It is a big question, the key one, if we are able to export 200 thousand tonnes per month and what efforts are needed,” said the expert.
In our opinion, the loss of the European market for LPG and methanol brings hinterland projects focused on exports into a question. In fact, the capacity of the Eastern Operating Domain is limited and even expanded it will give the priority to other types of cargo, mostly coal and containers.
We see a temporary way out in conversion of some oil product terminals suffering the decrease of cargo flow. However, in the long run, it is necessary to focus at creation of gas chemical clusters including dedicated sea terminals built close to production facilities. Such clusters should produce a wide range of products rather than focus on a narrow niche.