• Natural Gas News

    Gazprom Neft moves into LNG [NGW Magazine]


The oil-focused producer will launch an LNG bunkering vessel next year as part of plans to build up its gas business. [NGW Magazine Volume 5, Issue 19]

by: Joseph Murphy

Posted in:

Natural Gas & LNG News, Europe, Top Stories, Europe, Insights, Premium, NGW Magazine Articles, Volume 5, Issue 19, Energy Transition, Gazprom

Gazprom Neft moves into LNG [NGW Magazine]

LNG bunkering in Europe is on the rise, with stricter International Maritime Organisation (IMO) on the sulphur content of fuels driving recent growth. The fuel’s use is particularly popular in the Baltic Sea, and Russian oil firm Gazprom Neft is eyeing a slice of the market.

Though mainly oil-focused, Gazprom Neft wants to build up its gas business in northern Russia, to serve as a hedge against crude market volatility. It has been studying the LNG bunkering market since 2012 and wants to deploy its own LNG bunkering vessel next year, Gazpromneft’s marine bunkering head Alexei Medvedev told NGW. The 5,800-m3 vessel will provide ship-to-ship bunkering in the Baltic and North seas, and Gazprom Neft intends to launch additional ships in the future.

Signalling its growing interest in LNG, Gazprom Neft in July became the first Russian oil company to join the international Society for Gas as a Marine Fuel.

Gazprom Neft’s parent company Gazprom is looking to build several small-scale LNG production facilities in Russia, providing a source of supply for the company. Gazprom is constructing the 1.5mn metric ton/year (mt/yr) Portovaya LNG plant on the Baltic Sea, but the project has fallen behind schedule. It initially said the plant would start operating in 2019, but then delayed the start-up until 2020 and then to 2021.

Gazprom has plans for two more LNG bunkering sites on the Black Sea and in the Far East, but neither of them has left the drawing board.

Gazprom Neft is already a major global bunkerer of other, oil-based marine fuels, and wants to use its existing operations as a foundation for moving into LNG.

“Adding LNG to our product range will enable us to diversify our market position and to provide customers with a wider variety of fuel options,” Medvedev said. “We are closely monitoring the situation and the dynamics of potential LNG consumption volumes as well as other alternative fuels in the [Baltic] region.”

Demand for LNG as a bunkering fuel could reach 500,000 mt/yr in northeastern Europe within a decade, he said.

IMO rules that came into force this year lowered the permitted sulphur content of marine fuels from 3.5% to 0.5%. Many shipowners have sought to comply with this legislation by investing in scrubbers, which strip sulphur particles from ships’ exhaust smoke, or have switched from high-sulphur fuel oil (HSFO) to cleaner lower-sulphur fuel oil (LSFO) and gas oil. But others see LNG as the solution.

LNG is by far the best option for marine transport, its advocates argue. First, there are its green credentials – not only does it release 99% less SOx emissions compared with HSFO, easily clearing IMO standards, but it also emits 80% less NOx, 25% less CO2 and 99% fewer fine particles. Supporters also point to its lower cost versus more commonly used fuels. On the debit side is the additional bulkiness of LNG owing to the cryogenic storage conditions and its low energy density.

Russian shipowners are also getting involved, including state-run giant Sovcomflot. Not only does its 15-strong fleet of LNG carriers run on gas, but it also has six LNG-fuelled oil tankers in operation. Meanwhile, Gazprom in February laid the keel of Russia’s first LNG-powered passenger ship, Chaika LNG, which despite meaning ‘seagull’ will navigate the country’s rivers.

The government wants to pitch in, having held discussions in August on funding the development of LNG bunkering stations at up to 15 marine Russian ports, according to Vedomosti. Russia wants to expand the use of gas as both a waterborne and road vehicle fuel, to monetise more of its ample reserves and bring down transport costs.

On the supply side, Russia’s other LNG producer Novatek is already carrying out bunkering operations at a 660,000 mt/yr plant at Vysotsk on the Baltic Sea. The facility will potentially be enlarged by a further 1.1mn mt/yr. Novatek also agreed with Nauticor – which is now owned by Finnish Gasum – in April on developing bunkering on the German coast.

Future-proofing for the EU

The key question for LNG bunkering is whether it is future-proof. While easily clearing today’s emissions standards, the fuel could fall foul of stricter rules in the future.

The IMO’s current strategy is to reduce CO2 emissions by 40% by 2030 but it is due to be revised in 2023. Meanwhile, the EU wants to go even further than the IMO and include pollution from shipping in its carbon emissions trading system (ETS). The European Parliament voted in favour of legislation in September that would require all ships with a gross tonnage of over 5,000 making voyages within Europe and international journeys to and from EU ports to buy permits to cover the CO2 they emit. The change in regulation will come into force at the start of 2022.

After the vote, Greens MEP Jutta Paulus from Germany said the vote was “a strong signal in line with the European Green Deal and the climate emergency. “Monitoring and reporting CO2 emissions is important, but statistics alone do not save a single gram of greenhouse gas. That’s why we are going further than the EC proposal and demanding tougher measures to reduce emissions from maritime shipping,” she said.

Parliament will still need to negotiate with member states on the final form of this legislation. But beyond ETS inclusion, MEPs also called on individual shipping companies to commit to lowering their CO2 emissions by at least 40% by 2030.

What steps the EU takes to tackle shipping emissions will have obvious ramifications for Russia, and the many ships that deliver its oil, LNG, and other commodities in EU ports.

The alternatives to LNG are renewable energy-derived, so-called green hydrogen, and ammonia and methanol. But they are yet to be proven as commercially viable, available and scalable.

In its Maritime Forecast to 2050, published on September 22, Norwegian classification society DNV GL predicted that LNG would have a dominant role in shipping within a decade. In one scenario, DNV GL forecast it could account for as much as 28% of the maritime fuel market by 2030. However, it will then give away to cleaner alternatives, mainly bio-methanol, as stricter regulations are introduced. By 2040, the only LNG in use will be bio-LNG, accounting for 7% of the market.

In another scenario, which assumed these regulations would arrive later, DNV GL predicted that LNG’s share would reach 25% in 2030 and 48% in 2040, before shrinking to 19% in 2050.

“The total number of LNG-powered vessels is predicted to increase by up to five times in the medium term,” Medvedev said. “Based on these estimates, LNG can reasonably be expected to achieve a stable position in the bunkering market.”