LNG in Russia: is the status quo enough for the plans?
Andrey Shadurskiy,
Independent Researcher,
Vienna, Austria
Almost a decade ago Russia declared plans to become one the leading exporters of LNG in the world by 2020. It was aiming at 12% of the international market, 40-45 mtpa. Success was mixed: by 2021 Russia moved from the 8th to the 4th place in the ranking of LNG exporters, increasing the annual exports from 10.8 mt to 29.6 mt and the global share roughly from 5% to 8%.
In 2021, the new plans are likewise ambitious. The Russian Energy Strategy until 2035 forecasts exports of about 60 mtpa of LNG already by 2024 and 108 mtpa by 2035 – in a cautious scenario. The ambitious one aims at 189 mtpa. Ultimately, this corresponds with 20-25% of future global market. Covid-19 hit LNG industry hard in 2020, but weather and global recovery have made spot prices skyrocket in 2021, rekindling the LNG race.
How feasible are the new plans? The latest developments in Russian LNG speak both for and against them. By the end of 2021 Russia is expected to add only 2.4 mtpa to its capacity, finally launching the 4th train at Yamal LNG (0.9 mtpa) and Portovaya LNG (1.5 mtpa). Compared with the exemplary execution of the initial Yamal LNG project, these both have suffered numerous delays.
Especially humbling has been Novatek’s experience with the proprietary “Arctic cascade” liquefication technology at the 4th train of Yamal LNG. It sought to save as much as 30% of energy in the liquefication process by taking advantage of low ambient temperatures in the Arctic. Even more important the “Cascade” has been in view of Russia’s crucial efforts to build up sovereign technological expertise. The technology would then be used at the Novatek’s larger-scale 5 mtpa Ob LNG. Alas, in Spring 2021 Novatek decided to reprofile the Ob LNG to gas processing plant (GPP) with the focus on ammonia, hydrogen, and methanol production.
The second wave of capacity expansion is primarily linked with three projects. First, currently under construction is Novatek’s Arctic LNG 2, set to launch in 2023-2026. It is reported to be on schedule and will ultimately add hefty 19.8 mtpa to Russia’s capacity. But there is much more uncertainty with the next projects expected to come onstream: Baltic LNG at Ust-Luga and Far East LNG at De-Kastri in Khabarovsk krai. Baltic LNG, co-developed by Gazprom and RusGazDobycha, is designed be a part of a gigantic gas processing complex planned to process 45 bcm natural gas a year. Apart from 13 mt of LNG it will produce 3.8 mt of ethane and 2.4 mt of LPG. Gazprom has already secured liquefication technology co-patented with Linde and plans launching the 1st LNG train in the end of 2023 and the 2nd train – in the end of 2024. Due to the volumes unprecedented in the Baltic region, the project raises questions about its marketing model both for the LNG and other chemicals. More certain is the future of Far East LNG, co-developed by Rosneft and ExxonMobil as an extension of a production sharing agreement at the oil and gas fields of Sakhalin I. The final investment decision for this project is still due, but likely to be taken soon.
Beyond these, major projects are either closer to 2030s (e.g. Arctic LNG 1, Sakhalin II-T3) or highly unlikely, such as a 17.7 mtpa-strong Yakutsk LNG by Globaltek, which demands two very difficult conditions to come true: constructing a 1.300 km-long pipeline to Okhotsk Sea and securing permission for LNG exports from the Russian government.
Even the projects due in the next couple of years can still be affected by complex dynamics in the Russian LNG policy. Truly, there is substantial state support to make ambitious plans real. It manifests in partially or fully state-funded infrastructure projects, credits and guarantees from state-controlled financial institutions, extremely low taxes and duties. At the same time, the state-coordinated system is not completely smooth. The state-controlled shipbuilding industry is struggling with the volume and complexity of orders: the resulting delays may endanger the schedules of the largest LNG projects in the Arctic. There is still very limited domestic capacity and expertise available when it comes to liquefication technologies.
Tight regulation of LNG exports is yet other side of the coordination by state. The rules have not changed much from 2013 and the latest attempts to further liberalize access to LNG exports seem to have been buried again, except those regarding small-scale operations. The resulting LNG policy leads to a certain status quo of “specializations”. Gazprom is, in addition to obvious pipelines and pipeline exports, focuses on gasification of Russia, including with LNG; Novatek is the LNG exports champion; Rosneft is a contender for all of gas exports. The strongest blow to this status quo may come from the new green policies in Europe. Some LNG projects have already been repurposed as gas processing plants (Ob LNG, Pechora LNG). Others will combine GPP and LNG functions (Baltic LNG, Amur GPP).
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