As of today, Russia has two large-capacity gas liquefaction plants, with a total design capacity of approximately 26 million tons of LNG per year. But by 2025, this figure should exceed 40 million tons, according to government estimates. Plans for the subsequent years are even more ambitious - to become one of the top three leaders in global LNG production.
Russia eyes greater dominance in LNG production
2018 was a breakthrough year for Russian LNG production: Yamal LNG reached its full capacity ahead of schedule. This is the second largest gas liquefaction plant in the country. The first plant has been operating since 2009 as part of the Sakhalin-2 project.
Last year, LNG production in Russia sharply increased by 70% - up to 20 million tons from 11.8 million tons in 2017. According to the Analytical Center under the Government of the Russian Federation, 19.8 million tons went to foreign markets, which is 69% more than in 2017. Countries of the Asia-Pacific region accounted for 70% of exports, Europe accounted for 24%, while America and the Middle East accounted for 6%.
During 2017-2018 Russia increased its participation in the global LNG market from 4% to about 8%, according to estimates by Russian Minister of Energy Alexander Novak. And the government intends to increase this figure. By 2025, the total capacity of gas liquefaction plants in Russia should augment to 41.2 million tons, and the share of Russian LNG - up to 15%, according to information presented by Alexander Novak during a Cabinet meeting in October 2018.
By 2035, it is planned to increase LNG production in Russia up to 120-140 million tons per year, and Russian LNG plants will account for up to 20% of LNG plants in the world, cited Alexander Novak in June. At the same time, Russia should enter the top three global leaders in terms of LNG export. The government is counting on the increase of global LNG demand (up to 600 million tons by 2035), on the one hand, and also on the country’s vast resource base and its advantageous geographical position, on the other. However, it is imperative that companies comply with previously announced plans to create new gas liquefaction facilities.
Several projects for liquefying natural gas are being prepared for implementation (Table 2). Many of them were announced at the beginning of the decade and were due to start operations by 2020. However, a considerable part of the plans and projects were revised due to unforeseen circumstances – after 2014 energy prices tumbled and due to sanctions against Russia, it was difficult to attract financing from the West.
It is worth noting that competing countries at that time also delayed the commissioning of new gas liquefaction facilities. Nonetheless, according to Vygon Consulting, at year-end 2018, 16 projects with a total capacity of 93 million tons (over half of them in the USA) were under construction around the world, and facilities producing 87 million tons are planned to be commissioned until the end of 2025.
According to the report of Alexander Novak, by 2025 Russia will have launched the projects Arctic LNG 2 and Baltic LNG, additionally, expanding LNG production as part of Sakhalin 2.
The largest of these projects is the Arctic LNG 2 project of NOVATEK. Foreign partners have been engaged, FEED documentation has been prepared, EPC-contracts have been signed and most of the equipment has been contracted.
Three LNG trains are envisaged (each producing 6.6 million tons of LNG per year): the first LNG train is planned to be launched within four years, the last one should be implemented within six years. According to several experts, the enterprise may begin operations ahead of the announced schedule - as has already happened with Yamal LNG. Analysts predict that the future plant may become one of the most competitive in the world.
NOVATEK did not ask for subsidies for Arctic LNG 2, as was the case with Yamal LNG, so as not to expose the project to the risk of sanctions. However, the project will be able to enjoy tax benefits. Furthermore, the government is investing in the infrastructure of the Northern Sea Route, which is necessary for the transportation of Yamal LNG. The government will also provide subsidies for the construction of a tanker fleet for transporting LNG from Arctic LNG 2.
Another important project for Russia is expanding the capacity of Sakhalin’s LNG plant owned by Sakhalin Energy (controlling stake belongs to Gazprom). Today, the plant operates with an excess of the design capacity (9.6 million tons of LNG per year) and in 2018 production amounted to around 11 million tons.
There are plans to construct a third LNG train with a capacity of 5.4 million tons of LNG per year. Gazprom and Shell signed the corresponding memorandum in 2015, and by now FEED documentation is ready. However, construction has not begun.
There are several reasons for the delay, but experts claim the main one is uncertainty in regard to the resource base. At first it was planned to use gas from the Sakhalin-3 project of Gazprom, but its largest field - Yuzhno-Kirinskoye - fell under American sanctions. It became impossible to develop the oil deposits of Yuzhno-Kirinskoye field, and this postponed the start of gas production to 2023.
There were also negotiations with Exxon Neftegas Limited on the purchase of gas from the Sakhalin-1 project, but the parties did not reach agreement. Rosneft and Exxon want either an advantageous offer or independently liquefy Sakhalin-1 gas by building their own refinery.
However, the expansion of the Sakhalin-2 LNG plant remains on the agenda. What is more, the topic was discussed in July during President Vladimir Putin’s meeting with Shell President Ben van Beurden.
The third major project to be launched by the middle of the next decade is Baltic LNG in Ust-Luga. Gazprom initially planned to build a plant with its long-standing partner Shell. Potential participants include the Japanese companies Mitsui and Itochu Corporation.
However, in March it was announced that Gazprom would build a complex near Ust-Luga in partnership with RusGazDobycha JSC (owned by Artem Obolensky). The complex will combine ethane-containing gas processing (45 billion m3 of gas per year) and LNG production (13 million tons per year) on one site. Moreover, the complex will produce ethane and LPG.
The commissioning of the first phase of the complex is scheduled for the second half of 2023, the second phase is due to begin operations by the end of 2024. The total project cost is estimated to be at least 700 billion rubles. In August, it emerged that Gazprom asked the government to support the construction of the new facility, in particular, offering to finance the initial stage of the project through a contribution to VEB Capital.
In addition to the above-mentioned projects, during the period 2025-2035, several more gas liquefaction projects could be implemented.
By 2025, Rosneft, with its partners, could still build Far East LNG in order to liquefy gas from the Sakhalin-1 project. Production will be based in the village of De-Kastri in Khabarovsk Krai, where the oil-loading terminal of Exxon Neftegas Limited operates.
NOVATEK is preparing to further advance its experience in setting up production facilities as part of the Arctic LNG 3 project. Now NOVATEK is conducting geological exploration in the Severo-Ob area in the Ob Bay area, where a field with reserves of at least 320 billion m3 was discovered last year. In the future, there are plans to construct a large-scale LNG production plant in this area. In any case, NOVATEK intends to expand its activities: the company's strategy provides for the production of 57 million tons of LNG by 2030. Within the next two years, the company promised to revise its strategy and increase the target to 70 million tons per year.
Another project that can be expected in the next decade is Pechora LNG, implemented by the company ALLTECH (Dmitry Bosov). In 2015, Rosneft bought 50.1% of Pechora LNG. However, last year the state-owned company deemed the project unpromising and reduced the package value to 1%.
The project has a small resource base, with no possibility of expansion. Moreover, the state denied Pechora LNG the opportunity to export products. One of the reasons was that the project potentially created excessive competition in regard to Gazprom in Europe, according to Pavel Zavalny, Chairman of the State Duma Committee on Energy, in his interview to Vedomosti in February. Thus, the prospects for Pechora LNG are not yet clear.
The future of a possible Gazprom LNG project on the basis of the Shtokman field is also unclear. As of today, the development of the field has ceased.
Low and medium tonnage production
In the coming years, NOVATEK plans to build another plant near Sabetta - the relatively small Ob LNG, which includes three trains each with a capacity of about 1.6 million tons per year. An investment solution is expected next year and the launching of the first stage is set for the end of 2022. This plant will be different in that it will operate based on a Russian technology of gas liquefaction.
Medium-tonnage plants also include Gazprom’s Vladivostok LNG. Seven years ago, Gazprom planned to launch a plant with a capacity of 10 million tons per year near Vladivostok. There were plans to take raw materials from the Chayandinskoye field (this gas is now supplied to China), or from Sakhalin-3 (but development of the Yuzhno-Kirinskoye field had to be postponed). Vladivostok LNG now envisages a plant with an output of 1.5 million tons per year and the LNG produced will be used for the bunkering of ships. This will be the first such facility in the region. Construction may begin in 2020.
The North-East of Russia already has medium and low tonnage LNG plants. For instance, Kriogaz-Vysotsk operates in the Baltic (51% - NOVATEK, 49% - Gazprombank) and the first LNG train with a capacity of 660 thousand tons per year has been launched. The second train (1.1 million tons) will be completed in 2020. Kriogaz-Vysotsk produces bunker fuel and LNG for export and the domestic market.
Technologies and equipment
Western sanctions have steered clear of LNG technologies, but experts do not exclude that for now. The possible increase of pressure from the US and the EU is seen as one of the key risks in the industry.
In Russia, there is no proprietary technology for large-scale liquefaction methods. Shell’s dual mixed refrigerant (DMR) technology is used for Sakhalin-2, while American Air Products’ C3MR technology is used for Yamal LNG. Arctic LNG 2 plans to use the German Linde technology. In the meantime, Baltic LNG is negotiating with both Shell and Linde.
We have our own developments, but so far they are applied in a limited extent. NOVATEK has developed the Arctic Cascade gas liquefaction technology, which uses the natural cold of the environment. The technology is more cost-efficient than the C3MR technology, and better suited for use in the northern latitude. Furthermore, it paves the way for using domestic equipment. The fourth LNG train of Yamal LNG will be launched based on the Arctic Cascade technology; it will also be used at NOVATEK’s Ob LNG.
In 2017, Gazprom signed a contract with the company Cryogenmash (OMZ Group) in order to develop a production technology for up to 100 tons of LNG per hour (0.87 million tons per year). Project participators also include Giprokislorod (OMZ Group), Gazprom VNIIGaz and HMS Group. It was reported that the pilot and industrial operation of the first installation would begin in 2020. Looking forward to the future, large enterprises could be created on the basis of such installations.
It is worth noting that a year ago, the government approved a roadmap for localizing crucial equipment for medium and large capacity LNG facilities and the construction of gas carrier vessels. Several domestic enterprises are already working on the necessary machines and materials. Severstal, working for Gazprom, is manufacturing design elements of LNG storage tanks from innovative cryogenic low-carbon steel. The joint venture of Power Machines and Linde in St. Petersburg produces heat exchange equipment for gas liquefaction plants, which will be purchased by Gazprom and NOVATEK. Products of the HMS Group are used by NOVATEK to liquefy gas using the Arctic Cascade technology.
Shipbuilding for LNG projects is also being conducted in Russia. For instance, the fleet of Arc7 ice-class gas carriers for Arctic LNG 2 will be built at the Zvezda shipyard.Up to 80% of bulk equipment and materials could be provided by Russian enterprises in the near future, and for critical positions within the next five to seven years, announced Alexander Novak last year. According to the Minister of Energy, this will almost completely eliminate dependence on imports.