Liquefied myth

Baltic LNG should allow Gazprom to play in the globalization of business

Negotiations have resumed with potential participants in the Baltic LNG (Baltic Liquefied Natural Gas) project on the construction of a small LNG plant on the shores of the Gulf of Finland near Vyborg. As a source close to Sovcomflot told Vremya Novostei, decisive meetings with nine companies from the “long list” are being held these days as part of the Gastech international exhibition in Abu Dhabi. There is the head of the Baltic LNG company Alexander Krasnenkov, who about a month ago resigned from the post of deputy director of Sovcomflot (he held it since the summer of 2003, immediately after leaving Gazprom), as they say in his circle, due to the need to concentrate on promoting the Baltic project.

However, Mr. Krasnenkov seemed to have no obvious reasons for concentrating on this project. Gazprom has not yet made an investment decision on its economic feasibility and technical feasibility. Vremya Novostei's sources in the concern claim that there is no trace of the former enthusiasm around LNG. The most promising Gazprom “liquefied” project from a financial point of view, Shtokman LNG, has been postponed indefinitely. In November, the main ideologist and curator of this direction, Alexander Ryazanov (deputy chairman of the board of Gazprom and president of Gazprom Neft), resigned. And the November board of directors of Gazprom did not approve the company’s strategy in this area, only taking into account information about its development. In particular, the strategy states that Gazprom should occupy a prominent place in the global liquefied gas market by 2030. Previously it was about ten years. And the formation of a global gas market (based on the development of LNG) was one of the items on the G8’s energy agenda. True, in the end this idea was excluded from topics for discussion on the Russian initiative.

In addition, it is still unclear where to get gas for the plant near Vyborg and how to deliver it to the LNG production site, especially in connection with recent statements about the lack of gas and capacity for its transportation. (Suffice it to recall the recent curiosity with the ceremonial commissioning of the second power unit of the North-West CHPP, for the sake of which it was necessary to sharply reduce the gas supply to the first unit, since there was not enough gas for both.) According to Vremya Novostei, Gazprom’s forecast balance until 2010 deliveries to this plant are not provided.

It is quite possible that the point of view of the production team at Gazprom, led by Deputy Chairman of the Board Alexander Ananenkov, prevailed, who proposed first developing the reserves of the Yamal Peninsula and only then entering the shelf (it is on the basis of shelf projects that the production and export of LNG is most promising) of the North Seas. This would mean that the development of offshore fields, including Shtokman, is moving closer to 2020.

Gazprom and Sovcomflot established the Baltic LNG company (80 to 20%) in order to study the prospects for building a plant on the Baltic coast. The estimated capacity is 5 million tons of LNG, for which it is necessary to ensure the supply of 7 billion cubic meters of gas over 25 years. After this, a search for foreign partners was announced. 14 companies submitted their proposals. In the summer, nine potential participants remained on the list: Suntera (a joint venture between the Indian group Sun and Itera), the British BG Group and BP, the Italian Eni, the Spanish Iberdrola, the Algerian Sonatrach, the Japanese Mitsubishi, the Indonesian Petronas and the Canadian Petro-Canada. The most persistent were the Canadians, who received the honorable right to finance a pre-project study in the amount of up to $5 million. The results of the analysis of the possibility of building a plant and exporting LNG should be presented to Gazprom by the end of the year by Kellog, Brown & Root (a subsidiary of the American Halliburton) and Giprospetsgaz".

However, the scale of the difficulties on the path to Baltic LNG is now roughly clear. Firstly, gas for these needs is not included in the balance sheet. Secondly, this volume must be included in plans for the construction of the Gryazovets-Vyborg pipeline (onshore section of Nord Stream) and withstand competition with gas-hungry energy workers and industry in the northwestern region. Thirdly, in order to transport LNG across the Atlantic, large-capacity gas carriers are needed, which cannot take cargo in the shallow Baltic Sea - which means that the raw material will need to be reloaded. Fourth, the Gulf of Finland is freezing, and icebreaker support will be needed for four to five months of the year to transport LNG. Not to mention the likely obstacles from Denmark, which controls the exit from the Baltic Sea to the North Sea.

Nevertheless, last week the “export” deputy chairman of the board of Gazprom, Alexander Medvedev, said at a conference for North American investors that the concern remains interested in the Baltic LNG project. However, after the loudly announced plans of the leadership of the Russian gas monopolist to expand into the US market, he could not publicly refuse them. And after Shtokman LNG was postponed by a political decision, the Baltic plant remains the last likely platform for starting supplies of its own liquefied gas to America. To officially close the project means to admit a fiasco in this area. And finally lose such a trump card in the energy dialogue with Europeans as diversification of gas supplies, including through access to the markets of the USA and Canada. In this sense, after the collapse of the Shtokman consortium, Gazprom is interested in maintaining uncertainty and even some optimism about Baltic LNG.

Alexey GRIVACHS