The Ukrainian crisis and attempts by the U.S. and its closest allies in the EU, mainly Poland and the Baltic countries, to preserve Ukraine as the main transit route for Russian gas to the EU, including its efforts to put a stop to the “South Stream” project, which would allow Moscow to practically eliminate transit dependence on Kiev completely, acutely raises the question of accelerating the implementation of projects related to increasing the capacity for the production and export of liquefied natural gas (LNG). After all LNG is the only way to completely eliminate any kind of general transit dependence, not just Ukrainian. Moreover, LNG is a concrete way of defining the geography of supply and to develop new gas markets, where Russian presence is minimal or zero. According to projections, Russia in the coming years will increase its volume of exports of liquefied natural gas and will cover 15% of the world market. It is assumed that in 2020 the amount of LNG produced per year will reach 40 million tons, whereas now that figure is four times less (today it is 4.5%). Moreover, the entire volume of 10 million tons of LNG produced on the island of Sakhalin is intended for export to Japan, South Korea and China.
Prior to the events in Ukraine, which have sharply politicized the “gas issue”, growth in the supply of LNG was mainly associated with the development of new deposits, with the development of new transportation methods, as well as the construction of terminals in countries where previously they did not exist. In this regard, China is particularly promising, where they are already introducing regasification capacity, estimated for processing of 10 million tons of LNG. However, by 2016 this figure will increase to 22 million tons, and by 2020, 62 million tons. As of now, when the agreement was signed in Shanghai with China for Russia to supply this country a large quantity of gas to North and Central China, there is the prospect for the development of the gas market in South China, where currently Qatar dominates the market. And this part of the country is the most important industrial area that continues to develop rapidly. And yet the capacity of Sakhalin for this may not be adequate. Moreover, for development in the LNG industry, it requires serious investments and loans. And in order to attract the necessary funds, it is necessary to provide at the legislative level the possibility of concluding contracts with direct customers.
In this regard, since 2005 the most actively worked project has been “Yamal LNG” in the northern Urals. “Yamal LNG” is large-scale project for the purpose of producing liquefied natural gas on the Yamal Peninsula; it was implemented by Novatek OJSC and is based on the South Tambeyskoye field. Within the scope of the project, it envisages the construction of a gas liquefaction plant near the village of Sabetta (projected to be on-line in 2016), as well as the establishment of a seaport and airport in Sabetta as well as the construction of an ice-class tanker fleet. Investment in the project is estimated at $ 20 billion, not including investments in transport infrastructure. At present, the main shareholders of “Yamal LNG” are Novatek who have a 60% stake in the project; Total with 20% and a subsidiary of China National Petroleum Corporation (CNPC), China National Oil and Gas Exploration and Development Corporation (CNODC) with a 20% share. The Yarmal LNG project includes the construction of a liquefied natural gas refinery with the capacity of 16.5 million tons per year at the resource base of the South Tambeyskoye field. Proven and probable gas reserves of the deposit amount to 907 billion cubic meters. The first production line for LNG within the framework of the project is to be launched in 2017. Implementation of the project involves the creation of transport infrastructure, including the airport and a seaport near the village of Sabetta, as well as a terminal station in the Belgian port of Zeebrugge to deliver gas to the Asia-Pacific region during periods of navigation along the North Sea Route.
There is yet another large deposit for gas and LNG production; the Shtokman field is located in the central part of the Russian sector of the Barents Sea approximately 550 km north-east of Murmansk. The Shtokman gas field is a super-giant deposit located in the Barents Sea with estimated reserves of natural gas at 3.8 trillion cubic meters and up to 37 million tons of gas condensate; it was discovered in the late 1980s. In view of the fact that, the field is located 550 km away from the coast in the Arctic, and at a depth of 300-330 meters, the development is considered to be extremely capital-intensive and high-tech. The field covers an area of 1400 sq. meters Annual production of gas from the field would be commensurate with the annual gas consumption in a country like Germany, more than 70 billion cubic meters. Production will be organized with the help of a subsea production systems and special types of ship technology platforms (FPSO / FPU) with the possibility of a releasing quacking and moving out of the path of approaching icebergs. Produced gas will be delivered by underwater pipelines to the shore near the village of Teriberka. Teriberka will host a LNG refinery with a production capacity of 7.5 million tons per year, in addition to harbor transport infrastructure, processing facilities and other types of production facilities.
There are other sources of gas for LNG production, primarily contained within Arctic fields. According to international estimates, Russia accounts for 18.7 trillion cubic meters of gas in the Arctic and 20 billion tons of gas condensate. Their development will allow Russia to move far ahead of all other gas exporters, although cooperation with some of them is necessary, for example in the development of Iran’s South Pars field.
However, judging by Moscow’s latest steps, it is possible to conclude that priority is still given to the implementation of the “South Stream” project, although here one encounters powerful political opposition from the U.S. and its allies. Of course, efforts in this direction should continue. But we must clearly understand the realities of the “South Stream” project, as a bone in the throat of Washington and all those NATO countries who continue to use Ukraine against Russia. Moreover, that the U.S. and some EU countries are ready to buy Ukraine’s GTS, modernize it and use it for the transit of Russian gas to Europe. Besides that, the “South Stream” project maintains in its place the bind of Russian gas exports to the EU. And this means maintaining in its place the dependence of Moscow delivering energy resources to the West. And even the current agreement with China will not solve that problem, although it weakens somewhat Russia’s dependence from the EU. And the European Union through the third energy package and the subsequent legal acts will fully weaken a crucial role in the supply of Russian gas in Europe. There should be no illusions here.
Only the transition to the primary export of LNG will allow Russia to become a fully independent provider, as for liquefied natural gas, there are developing new and large markets in other regions, such as Asia, especially India, Pakistan, Southeast Asia, and South America. India’s demand alone within 6 to 8 years is estimated at 50 billion cubic meters. Together with China, the delivery of Russian LNG to India and other developing Asian economies will make Europe more dependent on gas exports from Russia, and not vice versa. And that gives another important advantage – the price of gas. After all, any deficit in supply will lead to higher prices. By creating export capacity of LNG (not equal to 35-40 million tons per year, as should occur after additional growth in the production of LNG in Sakhalin), from the beginning of production and export of LNG from South Tambeyskoye at Yamal and to build capacity for Stockman (thereby leaving the level of 70-80 million tons of LNG per year), Moscow will dictate the rules of the game in the global gas market, and not making it through the GECF, which simply did not operate as a “Gas OPEC” and do it at the national level without regard to others. And then other gas producers such as Venezuela, Bolivia, Kazakhstan, Turkmenistan’s, Azerbaijan and Iran will be able to create a new Gas Union instead of a pro-Qatari GECF.
Naturally, no one says that you need to turn off the volume of Russian gas supplies to the EU and to abandon the “South Stream” project, but the expansion of exports of LNG to the Asia-Pacific region, the development of markets in South and Southeast Asia, South America and Africa naturally will make us significantly less vulnerable to the West on the issue of the export of energy resources. Diversification of the geographic supply will occur; the pricing mechanisms will change, and last but not least, the economic potential of Russia will increase so too will its role in the global economy and energy. After all, the development of the above mentioned northern fields will boost these regions, because apart from gas production, there will be a need to create the appropriate infrastructure, industrial capacity for LNG, develop port facilities, not only through the North Sea Route, but also through the Baltic Sea, including the possible use of several of the Baltic countries, and not just along the coast near St. Petersburg, as well as the need to build a shipping fleet for the transport of LNG. For this it is necessary to attract foreign investors, including Western, especially American, British, French and Japanese investment, which will strengthen the integration of Russia into the world economy. And then there will be no United States to introduce sanctions against Russia in circumvention of the UN, given that in the United States and the European Union, they are able to count profits very well. LNG is an essential element of “soft energy strength” of Russia, and it is time to start accelerating its development.
Peter Lvov, Ph.D in political science, exclusively for the online magazine “New Eastern Outlook”.