Russia stands a fair chance of becoming a significant player in the rapidly expanding liquefied natural gas market.
The market’s experts unanimously believe that the production of liquefied natural gas (LNG) will remain the fastest growing branch of the gas industry at least until 2025. The government defers to their opinion: Alexander Novak, Head of the Ministry of Energy, has repeatedly spoken about the importance of the development of the LNG cluster in Russia. Large LNG plants, both existing and planned ones, the development of LNG low tonnage production and the boosting of a domestic demand for LNG, will allow us to increase Russia’s share in this segment of the global market from 4-5% to 20% which will in fact increase the export of gas by more than 100 million cubic meters per year, without increasing pipeline pumping.
According to the data provided by the Ministry of Energy of the Russian Federation, the global gas recovery has increased by 20% over the last 10 years (up to 580 billion cubic meters), and its share in the power balance has risen from 21% to 22%. In such a case, the global gas trade has expanded by 42% (by 313 billion cubic meters), while the LNG segment – by 59%, which is three times higher than the figures of the pipeline gas market. The global regasification capacities have increased by more than 400 million tons per year over the last decade, thus reaching the figure of 840 million tons.
And the tendency towards the breakneck unfolding of the market is on the rise in view of the cheapening and improvement of liquefaction and transportation technologies. Coincidently, it has led to a growth in the number of gas-consuming countries from 8 to 35. The top global LNG exporter – Qatar – expects some supply shortfall in this market in the medium-term perspective, said Mohammed Saleh Abdulla Al Sada, Minister of Energy of Industry of Qatar last autumn at a summit of the Gas Exporting Countries Forum in Bolivia.
“As was expected before, the excessive supply in the LNG market will not remain in the coming years. Rather few LNG projects will be launched in the years to come. As a result, the global LNG market may face a supply shortage by 2025”, said he.
Qatar intends to expand its LNG production capacities from 77 million tons per year to more than 100 million tons by 2014, said the minister. The Qatar’s authorities believe that owing to the development of such new markets as new power capacities and renewable energy sources integration, the gas demand will be growing in the coming decade and will have reached 500 million tons by 2030. The Ministry of Energy of Russia has similar estimates. The global LNG demand will increase by 121% (from 250 to 551 million tons, i.e. by 301 million tons) from 2016 to 2035. According to Alexander Novak’s data which is relevant as at the end of 2017, the same increase will be evident in Asia – by 198 million tons (from 178 to 376 million tons, growth share – 66%), in Europe – by 51 million tons (from 41 to 92 million tons, growth share – 17%), in Latin America – by 21.5 million tons (from 12 to 33 million tons, growth share – 7%).
This obvious ”Asian inclination” in the LNG consumption development is apparent and primarily driven by technologies: Europe already has an infrastructure for Russian pipeline gas deliveries. In the present context, LNG deliveries to Asia are a more profitable and flexible (from the market point of view) mechanism.
“The only complexity here is that it is impossible to use the Northern Sea Route in winter, so some part of deliveries needs to be reoriented. Alternatively, all gas from “Yamal LNG”, which already operates, would be delivered to Asia”, notes Vyacheslav Kulagin, Director of the Centre for the Study of International Energy Markets of the Energy Research Institute of the Russian Academy of Sciences. However this issue can be resolved as part of the state program on the development of the Arctic.
The 2020s can become a true boom for LNG projects in Russia, says Alexey Belogoryev, Deputy Director for Energy of the Institute of Energy and Finance of the Russian Federation. The focus on Asian countries seems reasonable since this market is characterized by premium pricing, and consumers are ready to overpay for the reliability of deliveries. After large pipeline projects in Russia were completed, it is quite logical to cross over to liquefied gas, believes the expert.
There is already fairly intense competition in the LNG market: new players are massively entering the market, and any possible deficit, in one way or another, will be only temporary. Taking into account the commissioning of large capacities all over the world, Russian companies should be ready to a situation when manufacturers will compete with each other in the price range of approximately 300 USD for 1 thousand cubic meters.
“As it is a completely different range, all companies, which are launching their projects today, will have to drastically reconsider their plans and optimize their costs in order to ensure that LNG deliveries will remain a profitable business”, thinks the expert.
“Gazprom” is developing its LNG trade and transportation segment in more than a dozen countries – Japan, Korea, China, India, Taiwan, Great Britain, the USA, Kuwait, the UAE, Mexico and others. But we preeminently discuss the prospects of the largest market of the Asia Pacific Region”.
“Being one of the leaders of the global gas industry, Russia is yet among those countries which lag behind in terms of LNG: Russia’s share in the LNG global market is 4.5%, though LNG plants under construction and gas industry development programs are called upon to rectify this situations as soon as possible”, according to “Gazprom”.
On the other hand, if one looks to the principal driver of the global economy – Asia, other global factors are not to be disregarded. The LNG production growth in Russia is facilitated not only by the necessity to diversify the gas export structure, but also by heightened environmental requirements which provide for a more widespread use of LNG as motor fuel. For instance, a massive impetus to the transition to LNG bunkering on a number of sea-going ships was given by a requirement of the International Maritime Organization to decrease the sulfur content in fuel from 3.5% to 0.5%. This figure is already in force for the Baltic Sea, and the first LNG large-capacity vessels have already been built at Finnish wharfs.
According to INFOLine’s study, the investment amount in six largest domestic LNG projects will exceed 2.2 trillion Rubles over the next 10 years. With the help of these funds it is planned to continue the construction of new lines at the operating plants “Sakhalin 2” and “Yamal LNG” and to launch new plants: “Arctic LNG-2” (“NOVATEK”), “Far East LNG” (“Rosneft”), “Baltic LNG”, and a plant and a terminal in Vysotsk (“Gazprom”).
“Yamal LNG”, which “NOVATEK” implements jointly with the Chinese CNPC and the French Total, has become the first large non-Gazprom project in this segment. The plant’s capacity is 16.5 million tons per year, and the first deliveries began at the end of 2017. The gigantic Yuzhno-Tambeyskoye gas field serves as the base for the project. ChTPZ delivered hot-deformed casing pipes which were used for the casing of gas well at Yuzhny Tambey. ChTPZ also delivered large-diameter pipes for the gas pipeline “Sakhalin-Khabarovsk-Vladivostok”.
“NOVATEK” is one of the first companies who took interest in the LNG market in Russia and it strives to take the lead in the segment. According to Mark Jetway, Deputy Head of the company, over the next 12 years “NOVATEK” is determined to become not only the principal manufacturer in the Russian market, but the global leader as well. According to the company’s estimates, Russia will be able to produce 80 million tons of LNG by 2030. And “NOVATEK” expects to have a 2/3 share in this market. Nowadays the gas producer is implementing yet another major project: it plans to launch “Arctic LNG-2” at the Utrennee Field by 2023, and the full capacity of 19.8 million cubic meters per year is expected to be achieved by 2026. It is assumed that the project will be three times cheaper than “Yamal LNG” which cost 27 billion USD.
Alexander Novak believes that the aggregate investments in the development of Russian gas resources for the purpose of LNG production until 2035 will be approximately 8 trillion Rubles. It will bring 3 trillion Rubles of taxes, orders for Russian enterprises and research institutions which are worth more than 7 trillion Rubles, as well as new high-tech work places. The additional GDP growth will be up to 1.5%, while export to the countries of the Asia Pacific Region, Africa and Latin American will increase by 30 billion USD.
“The fulfillment of the entire potential of the LNG segment will provide us with an opportunity to expand our share in the LNG market from 4-5% that we have today to 15-20%. It means that the export of gas will increase by more than 100 billion cubic meters per year, even with no regard for the growth of pipeline deliveries. Russia will therefore become one of the global leaders in terms of LNG deliveries”, said the Head of the Ministry of Energy at the end of 2017.