Russia eyes Asian market in LNG expansion
A lot of countries have a lot of natural gas they want to sell into the global marketplace, which is growing both in size and competitiveness.
Russia’s advantages in supplying a bigger share of the liquefied natural gas trade include its strong political and substantial financial support.
Russia aims to increase its LNG output about fivefold by 2035 to capture around 20 percent of the global market, with 70 percent of its production going to the Asia-Pacific region, Energy Minister Alexander Novak told the Nikkei Asian Review in an interview the first week of June.
Russia’s current LNG capacity is about 28 million tonnes a year from the 10-year-old Sakhalin-2 plant in the Far East and the 18-month-old Yamal LNG Arctic project.
Novak said his government would like to see that total grow to more than 120 million tonnes by 2035. That would include not only more production in the Arctic and Far East, but also in the Baltic region.
It’s an ambitious number — likely unrealistic — but the intent is clear.
“Russia will consistently build up its gas-liquefying capacities to carve out the niche that our country deserves in this field,” President Vladimir Putin said via video link at the April opening of a small-scale LNG plant in Vysotsk, just across the border from Finland, on the Baltic Sea.
While the plant is intended to serve domestic customers and small-volume buyers in the Baltic region, Scandinavia and Northwest Europe, it’s the large-volume customers in Asia that Russia covets.
Just as it did for the Yamal LNG project, which shipped its first cargo in December 2017, the government plans to help pay for the port infrastructure and dredging needed for Russia’s second Arctic LNG project targeting Asian buyers.
The government will cover 26.6 percent of the costs for building a new export terminal on the Gydan Peninsula for the Arctic LNG-2 project, Norway’s Barents Observer newspaper reported June 12. The private sector will pay 73.4 percent. A government commission has approved the funding plan, which was ordered by Putin.
The government spent several billion dollars on construction of the port and airport for Yamal, which is just across the bay from the Arctic LNG-2 site. Both ventures are led by Novatek, Russia’s largest privately owned gas producer.
Novatek is expected to make a final investment decision on Arctic LNG-2 in the third quarter of this year. It’s planned for 19.8 million tonnes annual capacity, with an estimated cost of $20 billion to $25 billion. Yamal, at 16.5 million tonnes, came in at $27 billion. Looking to control costs, Novatek plans to build the production modules for its second project at a new work yard near Murmansk, then tow the massive structures into place.
Novatek has signed up partners for Arctic LNG-2 from China, Japan and France.
Mitsui and Mitsubishi, two of Japan’s largest trading companies, will acquire a combined 10 percent stake. The deal is supported by the Japan Oil, Gas and Metals National Corp., an independent government corporation. The final agreement will be signed, likely in front of Putin, during the G-20 summit in Osaka later this month, according to news reports in Norway.
France’s Total took a 10 percent stake last year.
In April, Novatek agreed to sell a 20 percent stake to Chinese partners, equally split between a subsidiary of China National Petroleum Corp. and China National Offshore Oil Corp. Total and CNPC also are partners in Yamal LNG.
Even before making a final investment decision, Novatek reported in May that it had selected U.K.-based TechnipFMC to construct Arctic LNG-2, with first gas planned for 2023.
And already Novatek is starting development of a smaller, third LNG project in the Yamal region. The Ob LNG venture is estimated at $5 billion and could start operations in 2023 at almost 5 million tonnes, the Russian newspaper Kommersant reported, attributing the information to a high-ranking official at Novatek.
State-controlled Gazprom, the lead partner in the Sakhalin-2 project, is looking at expanding its Far East operation and also building a new LNG terminal on the Baltic. Reuters reported June 7 that the Russian government will use its National Wealth Fund to help finance Gazprom’s petrochemical and LNG project in the Baltic port of Ust-Luga.
The project would require equipment purchases of at least 900 billion roubles ($13.87 billion), Reuters reported. The LNG terminal would have an annual capacity of 10 million tonnes.
And just as it did for Yamal, the government is considering tax breaks for additional Arctic gas projects.
Companies could get their tax burden reduced by as much two-thirds for the life of the project, Russian Deputy Prime Minister Yury Trutnev was quoted by the Barents Observer in April.
“We are looking at two alternative approaches: One with up to 15-year tax preferences that include zero tax rates on profits and property, land use and extraction; and a second with two-thirds tax reductions for the whole project period.”
Help is not limited to financing, tax breaks and political support — there are icebreakers too.
“Without a modern nuclear icebreaking fleet, it is impossible to imagine development of the Northern Sea Route,” Vyacheslav Ruksha, director of the Northern Sea Route Directorate of Rosatom State Corp., said at the May 25 launch of the country’s newest nuclear-powered icebreaker.
“A decision has been made,” he said, to build additional nuclear icebreakers. “With their appearance in the Arctic, it will be possible to talk about year-round navigation along the Northern Sea Route.”
The 568-foot-long Ural, launched at a Baltic shipyard, will sail north to break ice for LNG carriers when it’s delivered to Rosatomflot by 2022.
“The Ural, together with its sisters, are central to our strategic project of opening the Northern Sea Route to all-year activity,” said a Rosatom official.
The Ural’s nuclear reactors can generate 350 megawatts of power and the vessel can break through ice 10-feet thick.
Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the incoming Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.