LNG export: pipe versus sea
Gazprom has announced its rejection of Baltic LNG project which stipulated construction of an LNG plant in the Leningrad region as it considered the project to be economically inefficient. Gazprom decided to focus on other projects related to production and transportation of natural gas while it may result in loss of considerable volumes of LNG export for the company’s partner Sovcomflot as well as in absence of LNG transshipment facilities in the North-West region.
“The all-embracing detailed analysis of the Baltic LNG project has shown that the Nord Stream pipeline construction and the Shtokman field development involving potential LNG production are more competitive projects. The decision was taken in this context to concentrate the Company’s major resources on the execution of these higher-priority projects,” said Alexey Miller at the Management Committee meeting.
The Baltic LNG project stipulated constructing an LNG plant in the Leningrad region. The Baltic Liquefied Gas Company (80 per cent – Gazprom Germania, 20 per cent – Sovcomflot) was set up in 2005 with the aim of executing the said project. The plant was to be built in Ust-Luga or in Primorsk close to the place where Nord Stream is to enter the Baltic Sea. The plant's capacity could range from 5 million tonnes to 7.2 million tonnes of LNG a year depending on whether it has one or two lines. The average cost of the project was estimated at $3.7 billion. Gazprom was planning to implement this project with foreign partners. Gazprom has previously said BP Plc and Canada's PetroCanada have been shortlisted for the project, which could have begun shipments of 5 million tonnes of super-cooled gas from 2012-2013.
Gazprom officials have also previously mentioned Italy's Eni, Japan's Mitsui and Co and Mitsubishi Corp, Spain's Iberdrola and a Malaysian company for Baltic LNG. In September Gazprom management decided to do more work on a feasibility study for the Baltic LNG plant. In November, Alexander Medvedev, the deputy chief executive of Gazprom called the project to be economically efficient. The plant was to start operation in 2011-2012.
On the one hand, LNG market presents perfect perspectives for development. On the other hand, Russia has large resources of gas and an extensive network of gas pipelines but it has no LNG plants. The only plant is under construction within the framework of Sakhalin-2 project. The construction of a plant on the shore of the Gulf of Finland (in the Leningrad region) could be a reasonable decision as it would ensure LNG export by sea. However, experts think the capacity of gas pipelines in the North-West of Russia are fully loaded today, while capacity increase would raise the cost of a thousand of cubic meters to $100, which is not economically efficient for the project implementation.
Within the framework of Baltic LNG project there was a plan to build a sea terminal for export of liquefied natural gas. Sovcomflot was to be an exclusive transport agent as a shareholder in the project. However now Sovcomflot has to give up the idea of LNG transportation in the North West. It should be noted, as early as in 2004 Sovcomflot considered LNG transportation as a priority of the company’s development. It entered the world market of LNG transportation in November 2006 after acquisition of two gas carriers operating at foreign markets. Besides, Sovcomflot and Japanese NYK won a tender for gas transportation for Sakhalin-2 project. The third gas carrier of the project is currently under completion. In December 2007, Sovcomflot and Sakhalin Energy set up a joint venture to operate port Prigorodnoje.
As of today, there are no sea terminals for LNG transshipment in the North-West of Russia. Besides, there areno LNG plants there. Among port projects related to gas it is necessary to note Sibur project on transshipment of liquefied hydrocarbon gas and that of Novatec on transshipment of gas condensate. Both projects are being implemented in the port of Ust-Luga.