Russian Oil and Gas Industry: News #4

Baltic LNG delayed for at least two years

Russian operator Ruskhimalliance unable to arrange prompt replacement of gas-fired turbines, delivery of which to Russia is blocked by international sanctions
Russia’s Baltic LNG project is slated to be pushed back for at least two years following last year’s withdrawal of international contractors from their engineering and supply commitments to comply with Western sanctions imposed against the country in response to Moscow’s invasion of Ukraine.

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Baltic LNG delayed for at least two years

Russian operator Ruskhimalliance unable to arrange prompt replacement of gas-fired turbines, delivery of which to Russia is blocked by international sanctions
Russia’s Baltic LNG project is slated to be pushed back for at least two years following last year’s withdrawal of international contractors from their engineering and supply commitments to comply with Western sanctions imposed against the country in response to Moscow’s invasion of Ukraine.

The construction of a gas liquefaction plant in Ust-Luga will be postponed by two years

It became known that there were partners who will provide technology for the project to replace the departed Linde.

Moscow, August 1 - IA Neftegaz.RU. Construction of a large-capacity LNG plant as part of a gas processing complex (GPC) for the processing of ethane-containing gas (CEG) in the village. Ust-Luga of the Leningrad region is shifted by 2 years.
This was stated by the Governor of the region A. Drozdenko at a press conference.

Governor's remarks:
the project is being implemented, this is the most important thing;
there was not a single day for the object to stand;
Linde did not act like a partner, it is clear that this is not their desire;
now there are court cases, there are losses, there is damage;
Today, investors are actively working on other markets, on the replacement of technologies, and this is happening;
partners emerged to ensure certain technology bottlenecks were delivered that were critical with Linde's departure;
the project will be implemented;
the project implementation period is shifted to the right, while the shift is called 2 years;
this is normal in the conditions that we found ourselves.
CPEG
The project of a large-capacity LNG plant as part of KPEG in Ust-Luga is being implemented by Rushimalliance , a parity joint venture between Gazprom and RusGazDobycha .
CPEG is a comprehensive project for the processing of ethane-containing gas ( wet gas ).
It combines the main technical processes of deep processing of hydrocarbon raw materials - from primary gas processing with the release of valuable components to the production of liquefied natural gas ( LNG ) and the production of polymers.
Capacity - 45 billion m 3 of gas / year.
It was assumed that KPEG would become the largest gas processing plant ( GPP ) in the Russian Federation and one of the most powerful in the world.
First , Gazprom competed strongly with NOVATEK for the Tambeyskoye field, the resource base of KPEG.
Then, in March 2021:
NIPIGAZ , a subsidiary of SIBUR , stopped work on the EPC contract for the KPEG GPC project;
but remained the general designer;
Gazprom then boldly declared that the change of the contractor under the EPC contract would not be reflected in the schedule, and a new contractor would be determined in the near future.
In May 2021, the CPEG project did start .
As part of SPIEF-21, RusKhimAlliance signed a new EPC contract for the project with the Linde GmbH consortium and the Turkish Renaissance Heavy Industries LLC.
SOGAZ prepared proposals for improving the mechanism for ensuring the interests of RusKhimAlliance.
RusKhimAlliance transferred an advance payment to Linde.
Linde's withdrawal from the project
Linde Actions:
in May 2022 - notified the customer about the suspension of work due to EU sanctions;
stated that it has stopped the implementation of new projects in Russia, but will continue to fulfill the requirements of already signed contracts, if this does not contradict the imposed sanctions;
curtailed its participation in the project after the introduction of the 5th package of EU sanctions, which establishes a ban on the supply of equipment for the production of LNG in the Russian Federation.
RusChemAlliance:
Linde did not agree with the position;
stated that the EU sanctions only prohibit the supply of equipment for the liquefaction of natural gas, and equipment for gas processing and the construction of a gas processing plant - no.
started litigation .

Search for technologies
Linde's departure also created problems for other LNG projects built on its technology.
There are a number of technologies for liquefying natural gas.
Linde's MFC (mixed fluid cascade) technology is based on the use of separate refrigeration circuits with mixed refrigerants.
The process includes 3 separate refrigeration cycles with mixed refrigerants:
pre-cooling:
heat exchange is carried out in finned plate heat exchangers,
refrigerant throttling is carried out at 2 pressure stages;
liquefaction,
subcooling - in the liquefaction and subcooling cycles, the refrigerant is throttled by 1 pressure stage.
The variants of MFC technology used by Russian companies differ from each other:
GPC KPEG in the village. Ust-Luga was to be built using MFC2 technology with 2 cooling cycles;
For the Arctic LNG-2 project, NOVATEK has acquired MFC4 technology for large-tonnage liquefaction with 3 cooling cycles from the German Linde.
However, in July 2023, L. Michelson reported that:
the company has signed multibillion -dollar research and development (R&D) contracts to localize LNG production technology;
for the missing equipment for the Arctic LNG-2, work is underway with Russian and friendly manufacturers.
It is not yet known how widespread NOVATEK's interests are in terms of localization.
Also, in June 2022, Arctic LNG-2 faced the refusal of the American Baker Hughes from the supply of gas turbines needed to liquefy gas and power the project.
In May 2023, it became known that the Chinese Harbin Guanghan Gas Turbine could become a supplier of turbines for the power supply of the plant .
But whether NOVATEK found turbines for LNG production on the 2nd and 3rd lines of the Arctic LNG-2 was not reported.

New production?
It was planned that after processing the ethane-containing gas supplied to the GPC KPEG, the remaining dry gas - methane in the amount of about 19 billion m 3 / year will be sent to the GTS of Gazprom.
In the village Ust-Luga is located compressor station ( CS ) Slavyanskaya, the head compressor station of the main gas pipeline ( MGP ) Nord Stream-2, through which gas was to be supplied to Germany.
Despite full technical readiness , the Nord Stream 2 IHL was not certified by Germany , and in September 2022, one of its strings was destroyed by an explosion in the Baltic Sea.
Taking into account the shutdown and subsequent explosion of the linear part of the Nord Stream 1 gas pipeline, as well as restrictions on other export pipeline routes, in the North-West of Russia there is an excess of gas in the amount of more than 110 billion m 3 / year, even without taking into account the contribution of the KPEG GKP.

According to A. Drozdenko, one more project for the construction of LNG facilities in Ust-Luga is currently being studied:
all fat from gas (ethane, propane, butane ) will be collected;
what will be done with dry gas is a crossroads for Gazprom:
we are discussing the topic of building another gas processing plant in the same location, so that LNG will be sold not through the gas pipeline to Europeans, but sold all over the world,
either in the hope of restoring economic partnerships to send dry gas to Europe;
a fundamental decision is now awaited on what to do with the dry gas;
all the fat gas that was collected from it is in demand on the market;
Communicating with colleagues and partners, today we are well aware that completely Russian gas processing technologies are emerging - for example, NOVATEK, Gazprom Neft and a number of other companies have very interesting experience;
it's a matter of time;
the stumbling block is whether this product is needed on the market or not.

The first line of the Arctic LNG-2 plant was delivered to the installation site on the Gydan Peninsula

The first line of the Arctic LNG-2 liquefied natural gas (LNG) plant was delivered to the installation site, where the resource base for the plant is located, on the Gydan Peninsula.

Dmitry Kadulin, deputy director of the LNG plant for the operation of Arctic LNG-2, said on the Rossiya24 TV channel that after the platform is installed in the design position, process pipelines will be connected to the onshore facilities of the plant, and auxiliary production units will be launched on the process line itself.

“We are ready to receive the first liquefied gas before the end of the year,” he added.

As reported, on July 20, the first line of the Arctic LNG-2 plant departed from Murmansk, where it was assembled at the Center for the Construction of Large Offshore Structures (TSSKMS) of LLC NOVATEK-Murmansk in the village of Belokamenka on the western coast of the Kola Bay. The dispatch ceremony was held with the participation of Russian President Vladimir Putin.

Technological lines of the plant are installed on gravity-type bases (GBS). Tanks for storage of finished products are located inside the GBS, each of them can easily accommodate three Boeing-737 aircraft.

The Arctic LNG-2 project provides for the construction of three stages for the production of liquefied natural gas with a capacity of 6.6 million tons per year.

The head of NOVATEK, Leonid Mikhelson, said that the first line of the Arctic LNG-2 liquefied natural gas plant will be launched in 2023, and it is expected to reach its design capacity in the first quarter of 2024.

The second line is expected to be launched in 2024, the third - in 2026. The resource base for the project is the Salmanovskoye (Utrenneye) field on the Gydan Peninsula.

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Pakistan is set to receive its first shipment of Russian discounted crude oil later this month. Islamabad, which has shared few details on the deal with Moscow, has not clarified how payment would be made.

State Minister for Petroleum Musadik Malik said Islamabad would buy only Russian crude oil, not refined products, under the deal, saying purchases could rise to 100,000 barrels per day if the first transaction goes smoothly.

"The [100,000 tons of] Russian oil will reach Pakistan by the end of the first week or at the beginning of the second [week] in June," he told reporters last week.

Analysis: Pakistan's imports of Russian crude face port, refinery, currency constraints

KARACHI, Pakistan, July 31 (Reuters) - Pakistan is unlikely to meet a target for Russian crude to make up two-thirds of its oil imports, despite attractive prices, hampered by a shortage of foreign currency and limitations at its refineries and ports, officials and analysts say.

The cash-strapped South Asian nation became Russia's latest customer snapping up discounted crude that has been banned from European markets due to Russia's war on Ukraine. Its first cargo arrived in June and a second is now under negotiation.

It is targeting 100,000 bpd of imports from Russia, compared with the total 154,000 bpd of crude it imported in 2022, in the hopes that will lower its import bill, address a foreign exchange crisis and keep a lid on record high inflation.

However, the benefits are being offset by increased shipping costs and lower quality refined products compared with the fuels produced with crude from Pakistan's main suppliers, Saudi Arabia and the United Arab Emirates.

Pakistan will have to increase gasoline and gasoil imports to make up for the lower output of these fuels from the Russian crude, leading to more dollar outflows and stress on its crisis-hit economy, said Shahbaz Ashraf, chief investment officer at Pakistan-based FRIM Ventures.

While Islamabad and Moscow have not disclosed pricing details and the extent of discounts, a shortage of Chinese yuan currency to pay for Russian crude poses another hurdle, as it needs the yuan for trade with China, its top trade partner.

Pakistan paid for its first Russian crude cargo in Chinese yuan. However, Aadil Nakhoda, assistant professor at Karachi's Institute of Business Administration, said it would be better for the country to use a barter deal with Russia than paying with yuan, which traders say is in short supply.

"How will it pay other lenders and how will it finance trade with China if it uses the low yuan reserves to pay for Russian oil?" Nakhoda said.

PORT, REFINERY CONSTRAINTS

Adding to the challenges, transportation costs for Russian crude are higher than for Middle Eastern crudes not only because of the longer distance traveled, but because Pakistan's ports cannot handle the large vessels departing Russia.

Urals crude had to be transferred from a supertanker on to smaller ships, known as a lightering operation, in Oman before heading to Pakistan, government officials said, unlike direct shipments from the Middle East.

Even with that extra cost, it was worth importing Russian oil, said Viktor Katona, lead crude analyst at Kpler, as Saudi Arab Light crude is $10 to $11 per barrel more expensive for Pakistani refiners than Urals, while lightering operations add around $2 to $3 per barrel.

"Pakistani buyers would still be much better off," he said.

However, Urals quality is a deterrent, as Pakistan's refineries cannot get as much gasoline and diesel out of Urals crude as they produce from Saudi and UAE crudes.

It will take Pakistan Refinery Ltd (PRL) at least two months to fully process its first cargo of 100,000 metric tons (730,000 barrels) of Urals crude as it needs to be blended with Middle East crude to offset the high output of fuel oil from the Russian oil, Zahid Mir, chief executive of the state-run refiner, told Reuters.

"Our optimum processing solution is to blend Urals with Middle Eastern imported crude while not exceeding 50% Ural in the blend," Mir said.

The residual fuel produced from Urals crude has to be mixed with diesel and kerosene to meet specifications for local use while the remainder is exported, but the deal was still commercially viable for Pakistan, Mir said.

PRL has no plans to upgrade its refinery to process fuel oil into higher quality fuels, he added.

Kpler's Katona expects Pakistan's liquidity issues and technical challenges to weigh on its appetite for Russian crude.

"Russian imports into Pakistan will not grow into anything bigger than one cargo per month," he said.