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LNG in Russia From Wikipedia, the free encyclopedia
The first plant, Sakhalin II, was completed in Russia in 2009 having utilised the skills of Shell plc, who under duress sold 50% of the project to Gazprom in 2006. Prior to 2017 Gazprom was the sole producer of Liquefied Natural Gas (LNG) in Russia.
The cost of a large LNG plant can be massive, with a plant costing $15-25 billion and often needing additional infrastructure of a town, pipelines to bring in gas, storage facilities, a port and ships to export the LNG, raising the cost to $30-50 billion,[1] often needing foreign investment and being given tax concessions to help fund the project.
LNG forms part of Russia's long term Energy strategy. In 2013 private Russian companies were authorized to export LNG. An increase in production capacity from 2017 saw a threefold increase in exports from 11 to 33 million tons per annum (MTPA) by 2022.[2]
The leading LNG company in Russia is Novatek who has plans to generate LNG capacity of 70 MTPA by 2030. [3] In December 2022, French company TotalEnergies withdrew from the Novatek board and wrote off their $3.7 billion shareholding in Novatek as a result of sanctions following the 2022 Russian invasion of Ukraine.[4]
Gazprom is undertaking very few developments, with Portovaya LNG being the only plant that has been built for them; another Gazprom project, Baltic LNG, was under construction in 2023.[citation needed]
In 2022 Russia was the fourth largest LNG exporter with sales expected to increase as the production capacity rises to 15-20% of the world market by 2035.[2]
The global demand for LNG is expected to rise around 85% from 2021 levels to 650-700 MTPA by 2040 with the USA and Qatar, which already export 70-80 MTPA each, expected to fill this new market.[2]
Exports from the Arctic plants relies on ice breaking LNG carriers, only a few Arc7-class tankers have been built of the 21 ordered.[5] 15 are being built in Russia at a cost of $9.6 billion, however the hulls were to be built in South Korea and essential equipment on board the ships is sourced from South Korea and Japan which has sanctions implications, the remaining 6 are being constructed in South Korea.[6] Three Korean construction orders were cancelled in May 2022 when payment deadlines were missed.[7]
From 2014 Russia used Fluxys facilities in Zeebrugge, Belgium for transshipment of LNG exports to the Asia-Pacific region or to feed into the EU network.[8] In 2023 the EU is proposing a law to allow EU countries to block Russia using LNG terminals in Europe, which may block access to the Fluxys terminal,[9] this wider proposed EU law, planned for 2024, would control all gas energy products, allowing the EU to block Russian access to European pipelines and LNG terminals making delivery impossible, allowing countries to cancel long term supply contracts by claiming force majeure.[10]
With the European Union committed to ending the purchase of fossil fuels from Russia by 2027, Russia must seek LNG markets elsewhere.[11]
The most important infrastructure needed for LNG production and transportation is an LNG plant consisting of one or more LNG trains, each of which is an independent unit for gas liquefaction and purification. A typical train consists of a compression area, propane condenser area, and methane and ethane areas.
Floating storage units are needed at the arctic plants to hold the LNG before transfer to an Arc7 LNG gas tanker for onward shipment.
Transhipment from the arctic plants need a specialist ship. The first-generation Yamalmax LNG carriers were designed to be capable of breaking through ice 1.5 metres (4.9 ft) thick with its bow and 2.1 metres (6.9 ft) ice when travelling backwards. Each ship is 300 metres (980 ft) long and 50 metres (160 ft) wide with a capacity of 172,600 cubic metres (6,100,000 cu ft), powered by 6 diesel electric engines giving 45 megawatts with the propulsion capable of rotating 360 degrees. 15 Arc7 ships serve the Yamal LNG plant.[12]
Second-generation Arc7 ships were designed in December 2020 by Finnish icebreaker designer Aker Arctic, along with South Korea’s Daewoo Shipbuilding & Marine Engineering. The first are currently under construction, with 51 MW power units making them capable of dealing with thicker ice. Novatek needs 42 of the new design to serve the new Arctic LNG 1, 2 and 3 plants and deliver the LNG eastwards to Kamchatka for onward delivery to Asian customers.[12]
In 2014 US sanctions prohibited Western companies from working on Russian Arctic offshore oil projects. Novatek was also sanctioned to block western finance of projects.[33]
Following the February 2022 invasion of Ukraine, international sanctions have been placed on many Russian exports, but not directly on Russian LNG exports, although some countries have imposed bans on imports into their own countries including the USA, and in October 2022 the Baltic states and the UK.[34][35]
The EU continues to import LNG from Russia, and in 2022 increased their purchases by 35% to 13.8 million tons (19.2bcm). Spain is a major importer of Russian LNG in 2022 and 2023 at around 5m tons.[36] [2] France bought 3.6m tonnes and 4.9m tonnes went through Zeebrugge. In 2023 the EU was importing roughly the same amount of gas in LNG form, as it was receiving via pipelines, both around 25bcm p.a.[37]
The sanctions that apply to the LNG industry in Russia comprise mainly embargoes on technology and the supply of equipment from Europe and the USA that are needed to build new LNG plants as well as finance for projects.[6] It is believed in 2023 by the sanction countries that the current restrictions will drastically reduce the opportunities for the industry’s expansion in Russia.[2] In July and September 2023 the USA sanctioned individuals and entities, including non-Russian, the aim being to target engineering and construction companies that are involved in various oil and gas projects in Russia, including as of September 2023 the Arctic LNG2 plant and transshipment terminals.[5]
Arctic LNG2 trains two and three will be delayed as gas turbines are not available from the west to power the plant needing a reconfiguration of the system.[23] Delays are also expected in completion of Arc7 ice-class tankers, until late 2024 and an LNG floating storage unit ordered from South Korea.[38] Additional delays from sanctions means that 10 Arc7 ships being built by Russia may not be all completed by 2030 as Samsung Heavy Industries has refused to build blocks and equipment essential for these ships [39] and Gaztransport & Technigaz suspended working with Russia in January 2023.[40]
In December 2023 Novatek announced that the start of Arctic LNG2 will be delayed after sending force majeure notices to some buyers citing sanctions imposed by the US in November make it impossible to supply gas,[41] foreign investors from France, China and Japan had themselves declared “force majeure” halted their participation.[42]
The main Baltic LNG equipment supply company Linde plc pulled out in 2022 due to sanctions issues and additional project suppliers of equipment have also been sanctioned by the US Treasury.[43]
LNG exporters are taxable in Russia on profits at 20% plus 3% in 2017-24, which increased from 2023-25 with an elevated profits tax of 34%. However Gazprom was exempt from the rise; this resulted in February 2023 in complaints from Novatek.[44]
Novatek's Yamal LNG does not benefit from the elevated tax exemption, but has a tax break with a 13.5% tax rate for 12 years or until production reached 250bcm [44] and is also exempt from export taxes and mining taxes for nine years.[citation needed]
In 2020, the Russian government approved an incentive program worth over $300 billion for Arctic infrastructure, industrial, LNG and oil and gas extraction projects, to encourage others to invest in the Arctic.[33]
In 2021, the government agreed to the Russian National Wealth Fund providing loans for the expansion of the Baltic LNG plant, an unprecedented size of loan for a single lender.[29] Gazprom noted it wished to strengthen its position in foreign LNG markets.[28]
In December 2023 a Russian presidential decree gave the government the power to confiscate and forcibly sell off assets belonging to European energy firms. New Russian-run companies have been created to take over shares in the Yuzhno-Russkoye oil and gas field. As of December 2023 this field was still owned by Austria’s OMV and Germany’s Wintershall Dea.[45]
In December 2023 the Russian government ordered oil and gas producers to install anti drone protection at their plants, to ward off Ukrainian drone attacks.[46]
The exploitation of fossil fuels, especially in the Arctic is of concern to environmentalists. Russia’s 2020 Arctic strategy envisions transforming the Northern Sea Route into a competitive Asia-Europe maritime corridor by 2035,[33] assisted by global warming which is making the normally frozen solid route more accessible. Due to its shorter length, navigation on the NSR contributes to reducing the carbon footprint of maritime transport, although this entails considerable risks for fragile Arctic ecosystems.[citation needed]
A 2022 report from the Russian Federal Service for Hydro-meteorology and Environmental Monitoring (Roshydromet) found that average temperatures along the Russian Arctic coast have increased by approximately 5 degrees Celsius since 1998.[47] Russia has no plans to become carbon neutral before 2100 and intends to exploit fossil fuels in the Arctic for the Asian market.[48]
The Arctic Council which represents the eight countries that have sovereignty in the Arctic and the resident Circumpolar peoples (Indigenous peoples), is limited to environmental protection, scientific research, and sustainable development but seems ineffective at controlling industrial development.[citation needed]
LNG is associated with climate change awareness, as the use of LNG generates about 50% less carbon dioxide than coal and 30% less carbon dioxide than oil.[11]
It was reported in August 2022 that the Portovaya LNG plant was burning off 4.34 million cubic metres of gas, worth $10m by flare every day, generating 9,000 tonnes of CO2 and soot.[49]
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