Russia approves plan for major LNG push
Russia's government approved a long-term programme for building up its LNG industry on March 22, aimed at capitalising on the country's low costs and abundant gas supply to carve out up to a 20% share of the global market for the super-cooled gas by 2035.
Global LNG demand is set to surge to 700mn metric tons by 2040, from 360mn mt last year, on the back of robust growth in Asia and an increase in gas use in sectors that would be hard to electrify, Shell reported in its annual LNG outlook report last month. Meanwhile, overall gas consumption will climb from 3.8 trillion m3 in 2018 to 4.7 trillion m3 in 2030 and 5.3 trillion m3 in 2050, BP estimates, driven by increased demand in Asia-Pacific and other markets like Africa. Russia is anxious to develop export projects in time to meet this growth, wary of competition and a post-2040 slowdown in gas demand due to the rise of renewable energy, the government says in its programme document.
Russia's strength is its low costs, the document says, estimating that the country can supply LNG to the global market at a cost of $3.7-7.0/mn Btu. The government views Australia, Qatar and the US as the main competitors.
Project pipeline
Russia currently boasts just under 27mn mt/year of nameplate LNG export capacity, comprising Gazprom's 9.6mn mt/yr Sakhalin-2 plant in the Far East and Novatek's 16.5mn mt/yr Yamal LNG facility in the Arctic, as well as the latter company's 0.66mn mt/yr Kryogas-Vysotsk unit in northwest Russia. But there are over a dozen more mid-sized and large-sized projects in the pipeline.
There is a lot of uncertainty about how quickly Russia will be able to ramp up LNG supply over the coming decades, however. In its high-end scenario, the government projects that production could rise to 65mn mt by 2024, 102.5mn mt by 2030 and 140mn mt by 2035. But in its low-end scenario, it sees supply only reaching 46mn mt by 2024, 63mn mt in 2030 and 80mn mt in 2035.
The next project due on stream is small in scale. The fourth 0.9mn mt/yr train at Yamal LNG should start up later this year, and it will showcase Novatek's proprietary Arctic Cascade liquefaction technology. All past LNG projects in Russia have used foreign liquefaction technology. The facility was originally scheduled for launch in late 2019. Gazprom also plans to commission its 1.5mn mt/yr Portovaya LNG plant in northwest Russia this year.
These units will be followed by Novatek's 19.8mn mt/yr Arctic LNG-2 facility, situated on the Gydan peninsula, whose three trains are due to start up between 2023 and 2025. The 5-6mn mt/yr Obsk LNG, another Novatek project on Gydan, is due online in 2024. But unlike Arctic LNG-2, Novatek is yet to take a final investment decision on its construction. The company had hoped to sanction the development last year but delayed the move because of the coronavirus pandemic. Obsk LNG is officially expected to use Arctic Cascade, but Moscow-based Kommersant reported earlier this month that Novatek was considering opting for technology developed by Germany's Linde instead, because of difficulties at Yamal LNG's fourth train.
There are a number of other projects that the government views as "likely" to start producing before 2030, including Gazprom's 13.3mn mt/yr Ust-Luga project, due online in 2024-2025. Gazprom recently cancelled a contract for the project's processing facilities, but it insists that work is on schedule. There is also Novatek's 19.8mn mt/yr Arctic LNG-1 project, expected to arrive in 2027, and the 17.7mn mt/yr Yakutsk LNG project in the Russian Far East, led by the privately-owned Yakusk Fuel and Energy Co. (Yatek). Rosneft and ExxonMobil's 6.2mn mt/yr Far East LNG plant has a predicted launch of 2027-2028.
The government considers Novatek's 19.8mn mt/yr Arctic LNG-3 and a 5.4mn mt/yr expansion at Sakhalin-2 as "possible" projects to be completed within the next decade. Gazprom also has early-stage plans for 0.5-1.5mn mt/yr and 1.5mn mt/yr projects on the Black Sea and Far Eastern shores, considered possible before 2025.
Post-2030, there are potentially Gazprom's 20mn mt/yr Tambey LNG and 30mn mt/yr Shtokman LNG projects and Rosneft's 30mn mt/yr Kara LNG and 30-50mn mt/yr Taymyr LNG projects, all located in the Arctic. A 10mn mt/yr expansion at Far East LNG might also be possible after 2035.