OPINION: Russia's ambitious plan to become a major international LNG supplier were reinforced this week by decisions to proceed with the construction of two significant liquefaction plants.
Alexander Novak, the country’s energy minister, said Russian LNG production could grow to between 120 million and 140 million tonnes per annum from the current annual output of about 30 million tpa.
His pronouncement came after two major projects - Arctic LNG 2 and Sakhalin 1 - were revealed to have passed important milestones.
Russia's largest independent gas producer, Novatek, and its foreign partners in Arctic LNG 2, took a final investment decision on this challenging project.
In addition, Igor Sechin, an executive at Rosneft, revealed that the shareholders in the ExxonMobil-led Sakhalin 1 consortium (in which it has a minority stake) decided to build an LNG plant at De-Kastri in the Russian far east.
Arctic LNG 2 is scheduled to export almost 20 million tpa to international markets, with its three trains due to come on line between 2023 and 2026.
In contrast, the long-discussed Sakhalin 1 LNG plant has a much more modest capacity of 6.2 million tpa.
Meanwhile, Novatek’s next ambitious project, Arctic LNG 1, is due to bring another 20 million tonnes of LNG to the market not later than 2030 and will use Arctic LNG 2's infrastructure.
Its three liquefaction trains are set to be built on concrete gravity base foundations and installed next to the three Arctic LNG 2 trains on the western shore of the Gydan Peninsula in West Siberia.
Two other projects scheduled for completion before 2030 are Novatek’s Obsky LNG and the third train of the Gazprom-led Sakhalin 2 development on Sakhalin Island.
Together, these will add over 10 million tpa of LNG capacity to Russia's total.
However, Moscow's LNG growth ambitions rely largely on the ability of Novatek to stick to its plans and implement large-scale, multi-billion dollar LNG projects, rather than on fostering the growth of several LNG players.
Novatek has had to find a way to work with international suppliers and partners because the company remains under US and European sanctions following Russia's annexation of the Crimea Peninsula from Ukraine in 2014.
So far, the authorities appear to have great faith in Novatek, with the company recently having been awarded an additional exploration and development licence for a block on the Gydan Peninsula, expanding its already large portfolio of gas assets in the Russian Arctic.
Novatek executives have repeatedly said that the success of their LNG projects depends on the government investing in transportation infrastructure plus providing low interest loans and various tax concessions to operators of these developments.
Such unprecedented state backing appears to be driven by Russian President Vladimir Putin, who personally oversees the major LNG projects of Novatek, a company where his purported friend, the businessman Gennady Timchenko, is a major shareholder.
Novatek and its LNG projects may today be the shining stars of Russian energy sector, but other parts of the country’s economy have been ailing, and public support for Putin dropped significantly this year.
While Novatek remains immune from negative trends in Russia's economy and politics, the company's very favourable operating terms may come under scrutiny and be revised as the country continues to move deeper into recession.
Russia's authorities must support and sanction other LNG projects if they are serious about fulfilling their long-term liquefaction growth goals - and stop putting all their eggs in one basket.
(This is an Upstream opinion article.)