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Russia’s LNG prospects

LNG Industry,


As Europe accelerates preparations for the transfer of vessels sailing in the Baltic and North seas to LNG, Russia only speaks about moving ahead with construction of required infrastructure. However, market players believe Russian LNG can be price-competitive, with backing from the state. Experts say that LNG plants should also be built in Saint Petersburg, rather than simply in Ust-Luga, Vyborg or Primorsk.

To catch up and overtake Europe

According to the strategy purported by the European Commission (EC), LNG refuelling stations should be installed in all European Union maritime ports by 2020 and all large EU inland ports by 2025. Port authorities typically choose specific means of LNG bunkering and logistics without outside input. LNG refueling stations are to appear not only in the ports of the North and Baltic Seas, the sulfur emission control area (SECA), but also in other ports including Mediterranean ones.

However, investments in the LNG terminal in Turku will generate between €60 - 65 million, estimates show. This project is to be implemented in 2015. The Port of Rotterdam and the Port of Gothenburg have entered into an alliance on the construction of LNG production and shipment terminals, a project which will receive €35.2 million from the EU.

Moreover, the following ports participate in the ‘LNG in Baltic Sea Ports’ project: Aarhus, Helsingborg, Helsinki, Malmö-Copenhagen, Tallinn, Turku, Stockholm and Riga. Under the project, work in the ports focuses on pre-investment studies and feasibility studies for LNG terminals as well as activities in this sphere.

According to Mabux, the average price of LNG is US$ 650 p/t in Europe, compared to gasoil – US$ 975 p/t – and intermediate fuel oil (IFO 380) – US$ 700 p/t. Experts say the consumption of LNG is on a par with conventional fuels (although LNG consumption per mile is significantly less). This means that in Europe, LNG is becoming increasingly competitive and it will become even more attractive with the introduction of requirements for sulphur content in marine fuel from 2015.

For Russia, the issue lies in the availability of infrastructure, which is being created with state support. Mabux forecasts that the number of vessels powered by LNG or by dual fuel will reach 1000 by 2020 (compared with just over 50 today) as global demand for LNG is anticipated to reach 34 million tpa by the turn of the decade.

Sales Manager of Wärtsilä Vostok LLC, Vitaly Konovalov, speaking at the Baltic Oil and Gas Week in Saint Petersburg, said that LNG represents the future of bunkering in the Baltic region, while scrubbers are a temporary solution for vessels built earlier.

What about Russia?

As a gas exporting country, LNG prices are even less in Russia. To ensure competitiveness against European projects, with political will and state support, LNG prices could be decreased.

According to the price report of IAA PortNews, the average price of low-sulfur heavy fuel oil in Saint Petersburg is currently US$ 430 p/t against US$ 613 p/t in Rotterdam. After 2015, regulations will prohibit the use of heavy fuel oil within emission control areas (ECAs). Even if other products with characteristics close to those of heavy fuel oil, but with a sulfur content of below 0.1% are used, their prices will be higher. The Russian LNG market then, will be attractive for ship owners, provided that LNG prices are lower than prices of the cheapest oil products meeting new environmental requirements. The market will also facilitate the development of a shipbuilding cluster. As conversion of old vessels is not profitable according to estimates, new LNG-powered vessels are set to be built.

Baltic plans in Russia have been announced by Gazprom OJSC, which is set to build a liquefaction plant capable of producing 10 million tpa of LNG.

LNG can also be used for bunkering purposes. A decision is yet to be made as regards a plant location, although the ports of Primorsk and Ust-Luga are under consideration. There is also a project in the pipeline for the construction of an LNG plant with lower capacity near Vyborg (close to gas pipeline Nord Stream).

If Russia implements these projects, they would arrange LNG bunkering in Russian ports in the Gulf of Finland. Price and bunkering infrastructure needs to be determined before operations get underway.

However, when it comes to the location of LNG plant, Saint-Petersburg appears to be the more cost-effective option when compared with Vyborg, Primorsk or Ust-Luga as the number of calls to port is several times higher there. Besides, the vessels calling at Saint Petersburg sail within the Baltic and North Sea ECA.

According to Vitaly Konovalov, it is more lucrative for Russia to create a floating LNG (FLNG) bunker, off the coast of the Gulf of Finland, as it is more efficient than the truck-to-ship bunkering technology. Konovalov also recommended that LNG bunker terminals also be built near Astrakhan and Temryuk, at the entry to the Caspian and Black seas, so that mixed river-sea-going ships could be refueled with gas, both in the Gulf of Finland, and in southern seas. The Wartsila representative noted that a number of Caspian states, Turkmenistan in particular, have already planed to build LNG refuelling stations.

With construction of LNG infrastructure focused on transit shipping by inland water routes, building LNG plant and bunkering terminals in Saint Petersburg makes good sense.

According to Aleksey Shukletsov, Executive Director of Bronka project investor Fenix LLC, the demand for LNG would be ensured if LNG plants appeared in Russian sections of the Baltic Sea, especially in Saint-Petersburg (not necessarily at the coast), and if LNG fuel costs are less compared with alternative fuels.

Moreover, Russian geopolitical issues related to the Black Sea could also be solved through LNG bunkering in Saint-Petersburg. For example, arranging a container line between Saint Petersburg and Kaliningrad may solve the problem of tariff wars at the railways of Russia, Lithuania and Belarus. Such container carriers could use LNG as bunker fuel if an adequate price is ensured.

Witten by Vitaly Chernov, adapted to house style by Ted Monroe

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/06112013/vitaly_chernov_looks_at_the_future_of_russian_lng/


 

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