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    From the Editor: Where now for Russian LNG? [Gas in Transition]


Russia has been trying to develop a complete domestic LNG delivery chain, but its efforts still fall short and will be further hampered by its increasing commercial and international isolation. [Gas in Transition, Volume 2, Issue 4]

by: Ross McCracken

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From the Editor: Where now for Russian LNG? [Gas in Transition]

Russia embarked on a major expansion of its LNG sector well before its invasion of Ukraine, as part of its efforts to diversify the reach of its gas exports. It has also invested heavily in the 38bn m3/year Power of Siberia pipeline, which takes gas from Russia’s Far East into China.

Faced with European energy transition plans gradually to eradicate fossil fuel use, both were key elements of Moscow’s ‘pivot’ towards Asia.

In February, state gas company Gazprom agreed to construction of the Power of Siberia 2 pipeline, which will supply China with gas from fields on the Yamal peninsula. Capacity is planned at around 50bn m3/yr.

As a result, China could, in time, become Russia’s largest single gas customer.

However, if Europe reduces its imports of Russian gas as planned – far faster than anticipated under the energy transition – Moscow could end up with less customer diversity than before and lower volumes of gas sales.

Unless, of course, it can expand its LNG sector, allowing it to reach multiple Asian markets and more.

Slow developer

Gas exports by pipeline to China come from new fields developed in the country’s Far East and pipeline gas once bound for Europe cannot simply be redirected to Asia, but it could be redirected to new liquefaction plants. Just as LNG is a key part of the answer to Europe increasing non-Russian gas supplies, it is also a solution to Russia’s potentially locked-in gas resources.

However, Russia’s ability to exploit the opportunity is limited; the largest holder of proven gas reserves in the world will almost certainly be ruing its late entry to the LNG market.

Russia has been slow, and it is only in recent years that it has made greater efforts to develop the capacity to build liquefaction capacity without other countries’ technologies, a process which appears far from complete.


LNG expansion depends on European liquefaction tech

The country’s first LNG plant was completed only in 2009 on Sakhalin Island on Russia’s Pacific Ocean coast. The 9.6mn mt/yr plant uses Shell’s DMR liquefaction technology. Partners in the Sakhalin Energy Investment Company are Gazprom, Shell, Mitsui and Mitsubishi.

Shell has announced plans to exit all of its joint ventures with Gazprom and suspend all operations in Russia in a phased manner, including divestment of its 27.5% stake in the Sakhalin-2 LNG plant.

Despite numerous proposed projects, it took until 2017 for the country’s second plant to come on-stream, developed not by Gazprom, but privately-owned Russian gas company Novatek, a company which has consistently found favour with the government. The Yamal LNG project has a capacity of 16.5mn mt/yr from three trains using Air Products’ AP-C3MR liquefaction process. Pipes and equipment were supplied by European manufacturers.

On March 21, Air Products said that it would divest its interests in Russia and not pursue any new business development activities in the country.

Yamal LNG is a partnership between Novatek, TotalEnergies, CNPC and Silk Road Fund. TotalEnergies has a 20% interest and a further 20% stake in Novatek itself. Unlike Shell, BP, ExxonMobil and Equinor, TotalEnergies has not announced any intention to withdraw from Russia.

“It works, but it is bad”

Yamal LNG’s fourth train came online last year and has a capacity of 0.9mn mt/yr. It is the first Russian train to use home-grown tech – Novatek’s Arctic Cascade liquefaction process.

Its deployment has not gone well. According to Novatek CEO Leonid Mikhelson, as quoted in the Barents Observer last September, “it’s not about the technology itself … It must be admitted that our manufacturers and factories still have to learn how to make good products. We have claims against almost all suppliers of equipment for the fourth line.”

He concluded, “It works, but it is bad.”

At the end of last year, the much-delayed Portovaya LNG Train 1 was reported to be in its final stages of commissioning. Located about 150 km northwest of St Petersburg, it is sited near the inlet point to the Nord Stream pipeline to Germany. Gas is sourced from the Gryazovets-Vyborg pipeline which brings gas from Western Siberia and the Yamal Peninsula.

Again, the project was a test of increased Russian content and delivery, this time by Gazprom. Russia’s Peton Group was the main engineering, procurement and construction contractor, but the liquefaction technology and storage tank were provided by a consortium comprising the European Linde Group, along with Turkey’s Renaissance Heavy Industries (RHI).

On March 17, Linde confirmed that it was winding down its operations in Russia and had suspended all business development for new projects. However, it said it intended to fulfil existing contracts, if sanctions allow.

How sanctions will affect recent contracts is unclear. Linde and RHI were awarded a contract by Gazprom last autumn for the planned Ust-Luga LNG and gas processing complex. The LNG plant is expected to have liquefaction capacity of 13mn mt/yr from two trains, but at the end of last year the board of Gazprom approved a memorandum of understanding for a third train.

Although some reports suggest the complex could be operational in 2023/24, others suggest planning and design is some way behind this.

Russia also has the Arctic LNG 2 project under construction, a Novatek development. The first 6.6mn mt/yr train is expected onstream as early as 2023, followed by a second train in 2024 and a third in 2026. Still wary of its own Arctic Cascade process, Linde is again providing the liquefaction technology. Partners in the project are Novatek, CNOOC, CNPC, TotalEnergies, JOG-MEC and Mitsui.

Double-edged sword

Given Europe’s new-found thirst for LNG, completion of the Arctic LNG 2 plant would be beneficial in terms of increased LNG supply. If shunned by European buyers, Arctic LNG 2 cargoes would head to Asia, satisfying demand there and alleviating competition for Atlantic basin LNG.

Delays to Russian LNG plants under construction, if brought about either by sanctions or self-sanctioning, would be a double-edged sword, increasing the cost of European LNG supplies.

However, it is clear that Russia does not yet have the capacity to build large LNG plants of its own and that the liquefaction process and equipment, as well as storage tanks, are primary bottlenecks. Beyond contracts already signed, Russia will struggle to find the right partners to build further plants to relieve its own prospective export bottleneck, leaving the field open to the US, Qatar and other LNG suppliers. In the longer term, it could find itself with capital sunk into large pipelines that will only ever deliver gas to one dominant consumer market, China.