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Russia LNG
- 1. The Outlook forRussian LNG Assessing the outlook for Russian LNG projects against a backdrop of sanctions and decline… Nicholas Cobb Managing Director / Independent Russia Analyst Cobb Energy Communications LTD 23.03.2015
- 2. Introducing CEC… Cobb EnergyCommunications (CEC) is an energy sector focused communications, commodities and technical consultancy offering a wide variety of cost- effective corporate services.Working with a range of organisations including the UK Government, major international events organisers as well as small to medium sized energy companies CEC is pleased to offer a bespoke, cost- effective and friendly service. Our service specialism includes: Corporate & Political Communications Russia & the CIS Corporate Advisory Sanctions advice Research and consultancy UK & Russian Government Relations – Access to Russian Government, Duma, MFA, Ministry of Energy, Orthodox Church and Industry Energy and Commodities Brokerage Events Management & Production Project Funding and Deal Facilitation In-Country Agent Support in the UK, Germany, Canada, Russia & the CIS Shale Gas & Gas Contracts Training / Consultancy Energy Research and Consultancy For more information please visit www.cobbenergy.co.uk / email nic@cobbenergy.co.uk About the Speaker: Prior to founding Cobb Energy in late 2012, Nic worked for a number of leading events and trade media companies including the Daily Mail Group, Centaur Media PLC as well as Argus Media Ltd – a leading hydrocarbon price assessment agency. Having left DMG Nic setup Cobb Energy as a niche energy sector communications and events consultancy designed with the client needs at its heart. Nic has experience of working with senior leadership teams from across the energy sector including the full industry chain from upstream operators through to renewable energy companies and government. In addition CEC offers a comprehensive commodity brokerage service. In late 2014 Nic launched the new 'Russian Corporate Advisory Service' which offers clients an enhanced energy and government relations service through proprietary contacts including former Ambassadors, a former UK Energy Minister, senior diplomats as well as well placed individuals within Russian and UK business. As an independent energy analyst and Russia watcher Nic has worked with a range of organisations including the BBC, PR Week, Bloomberg and others and regularly writeson East-West energy relations. Nic is an avid Russophile and a Trustee & Director of the Great Britain Russia Society as well as the Chairman of the Westminster Russia Forum. In addition Nic is also the Vice Chair of an in inner city school governing board, and also stood as a candidate in the 2010 election.
- 3. What will bediscussed? • Overview of East – West energy relations – changing dynamic in serial decline… • Makeup of the Russian hydrocarbon & LNG sectors… – Who are the major players? • Corporate governance – nature of the state-industrial complex – In search of new markets – Sanctions and how they impact business operations • The Crimean Peninsula – stumbling block to future East-West energy cooperation • Current, planned and projects under construction – overview and project developments • What does the future hold for Russian LNG? • Q&A
- 4. Overview of East– West energy relations – changing dynamic in serial decline… • The summary – poor and declining political – energy – corporate relations with no immediate sign of resolution • Traditionally strong relations with Western Europe: – Westerngas supplies /Central & Eastern Europe dependent on Russian natural gas dating back to Soviet times – Traditionally close post Soviet corporate links with Balkan and Central / East European state – Westas a major recipient of Russian energy products – Increasing ties with North American majors in Arctic exploration & knowledge transfer • What are the factors impacting current relations between Moscow and Western energy relations? – Ukraine , MH17, Crimea referendum and ongoing situation in Luhansk and Donetsk – Propaganda and media war – Moscow, Brussels and Washington – difficult to tell the wood for the trees – Geopolitical factors – Snowden, Syria and NATO-Russia tensions impacting policy making – despite corporate appetite to continue ‘business as usual’ operationally captive to geopolitical factors and sanctions – commercial slowdownbeholden to political relations – Traditionally murky corporate governance and historic actions – BP-TNK etc • Moving ahead? – Short to medium term slow down in in-country business between Russian and Westerncorporates with business as usual as far as possible – As an inherently strategic sector – ‘energy’ and LNG may be the last to normalise – Removal of sanctions may allow European partners and technical providers the chance resume operations but London and Washington may drag feet for political gain – Moscow is keen to re-establish commercial links – Russia remains a high risk business environment but requires Western expertise to realise projects despite improving domestic capacity
- 5. The Russian Energy& LNG Sectors ‘At a Glance’ Who are the Major Players in Russian Gas Sector? • Baltic LNG • Gazprom • Itera • Lukoil • Northgas • Novatek • Rosneft • Sakhalin Energy • SeverEnergia • Soyuzneftegaz • Surgutneftegas • Tatneft • TNK-BP • TyumenNIIgiprogas • Yuganskneftegaz Novatek: • Russia’s largest independent gas producer – seventh largest gas publically traded producer globally • Founded 1994 • Publically traded company on London and Moscow Stock Exchanges and owned by: – Leonid Miichelson – CEO – 28% share – Volga Group – 23% – Total SA – 16% – Gazprom – 9.4% • Operations: – Yurkharovskoye field (full ownership) – South Tambeyskoye field (full ownership) – Termokartskoye field (Part ownership with Total SA) – Malo – Yamalskoye field – (Acquired via purchase of Tambneyneftegas) – 51% stake in Sibneftegaz (With Itera) – Joint project with Gazprom in Yamal – with Total SA – Developing Sabetta Port in JV with RF Government – Host of other companies • Sanctions: – Limited access to long term finance over 90 days – No interests in Crimea Russian LNG Operators Case Studies: Gazprom: • Headquartered Moscow • Founded 1989 • State enterprise and owned by RF Government • Management - state oriented –Chairman - ViktorZubkov • Number of employees – 393,000 • Global energy company with worlds largest gas reserves • Market share – 17% global and 72% national • Currently only producer and exporter of LNG • Major operations include aviation, banking, production and exploration, transport and support services • Major projects include: Nord Stream, Sakhalin II, Shtokman, South Stream, Yamal Megaproject and producing assets • International trading arm • Extensive interest in LNG exports and project development • Sanctions – subject to major sanctions Make-Up of Russian Corporate Sector: • Flat business structure • Pre-dominance of state interests • Close tie between business and the national interest • Good opportunities for the right company
- 6. Russia in Searchfor New Gas Markets… Russia seeks to expand its global gas client base… • Rapid re-alignment of Russian economy Eastwards •With increase in US Shale and increased production Russia looks to Far East and Asia to ensure project viability • Russia supplies 5% of global market from Sakhalin - aims to boost to 20% in 2030 •Ukraine – Russia tensions stokes interest for Western regas terminals • Russia liberalises export markets – major investments into Northern projects – e.g. $27bn investment into Yamal • Northern sea routes open up trade with Asia •Up to a point will always trade with Western partners but diversifying exports to include: • Japan • South Korea • China – undetermined impact on US exports • Major energy cooperation and integration • $400bn supply deal over three decades • Major new pipeline projects – Altai & West- East Pipelines •On the ‘doorstep’ term supply • Other Asian buyers • Change in official attitude – diplomatic re-alignment
- 7. The Sanctions List… Typesof Sanctions (EU): • Individuals & Organisations: – 151 persons and 27 entities linked to Ukraine crisis – Wide range of organisations including commercial entities – Ban on all imports and exports to Crimea • Sectoral sanctions: • EU nationals and companies may no longer buy or sell new bonds, equity or similar financial instruments with a maturity exceeding 30 days, issued by: – five major state-owned Russian banks, their subsidiaries outside the EU and those acting on their behalf or under their control. – three major Russia energy companies and – three major Russian defence companies. • Services related to the issuing of such financial instruments, e.g. brokering, are also prohibited. • EU nationals and companies may not provide loans to five major Russian state-owned banks. • Embargo on the import and export of arms and related material from/to Russia, covering all items on the EU common military list. • Prohibition on exports of dual use goods and technology for military use in Russia or to Russian military end-users, including all items in the EU list of dual use goods. Export of dual use goods to nine mixed defence companies is also banned. • Exports of certain energy-related equipment and technology to Russia are subject to prior authorisation by competent authorities of Member States. Export licenses will be denied if products are destined for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia. • Services necessary for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia may not be supplied, for instance drilling, well testing or logging services.
- 8. Russian LNG Projectsand Planned Developments… Operational… Sakhalin LNG Planned… Baltic LNG Vladivostok LNG Under Construction… Shtokman Projects on hold – Far Eastern LNG
- 9. Gazprom LNG Projects– Sakhalin II Sakhalin Overview: • Sakhalin Energy Investment Company Ltd. (Sakhalin Energy) is the Sakhalin II project operator – Parent Gazprom • The Sakhalin Energy shareholders: – Gazprom Sakhalin Holdings B.V.(a subsidiary Gazprom – 50 per cent plus one share) – Shell Sakhalin Holdings B.V. (a subsidiary of Royal Dutch Shell plc. – 27.5 per cent minus one share) – Mitsui Sakhalin Holdings B.V. (a subsidiary of Mitsui and Co., Ltd. – 12.5 per cent) – Diamond Gas Sakhalin B.V. (a subsidiary of Mitsubishi Corporation – 10 per cent) • Major development project includes 1999 - Present: – Lunskoye A Installed 2006 with production of 50mn cubic feet of production, 16,000 bls of crude and 50,000bls per day of condensates – Piltun-Astokhstkoye A Platform – Mothballed 1990 but re-activated 1998 -90,000 bls of crude per day and 1.7mn cubic meters of associated gas – Piltun-Astokhstkoye B Platform – Established 2007 - 70,000bls of crude per day – Extensive E&P activity – Onshore gas processing facility – NE Sakhalin Island with extensive gas, condensate and crude processing facilities – Extensive modernisation of regional infrastructure – Trans-Sakhalin pipelines – Connects all offshore to processing facility – LNG and crude export facilities – Oil export terminal • Sakhalin II LNG Export Terminal: – First of its kind in Russia – Located Prigorodnoye – Aniva Bay and built in cooperation with Japan’s Chiyoda Corporation / Toyo Engineering Corporation – designed to shout down in case of seismic event – Produces 9.6mn tons of LNG per year – Accounts for 4% of worlds LNG
- 10. Sakhalin LNG (Continued) SakhalinLNG Clients Include (amongst others): • Kyushu Electric Power Company • Shell Eastern Trading Ltd • Tokyo Gas • Toho Gas • Korea Gas Corporation • Hiroshima Gas Co. Ltd • Tōhoku Electric Power Company • Osaka Gas • Chūbu Electric Power Company • Tepco • Gazprom M&T – Chartering • Utilities and Importers in India, Taiwan, UK, Mexico and others Sakhalin LNG II LNG Includes: • Two 100,000 cubic metres (3,500,000 cu ft) LNG storage tanks • An LNG jetty • Two LNG processing trains, each with capacity of 4.8 million tons of LNG per year • Two refrigerantstorage spheres, 1,600 cubic metres (57,000 cu ft) each (gross capacity) for propane and ethane storage •A diesel fuel system • A heat transfer fluid system for the supply of heat to various process consumers • Five gas turbine driven generators with a total capacity of around 129 MW electrical power • Utility systems including instrument air and nitrogen plants and diesel fuel systems • A waste water treatment plant to treat both sewage water and coil-containing water
- 11. Vladivostok LNG –Train One2018 The Vladivostok LNG – a National Priority…. • Vladivostok LNG project to be sped up as a national priority to boost Eastern exports / boost global market share • Project is part of the development of the Unified gas Supply System of Russia (UGSS) to boost APAC market exports • Main export target – Japan (Worlds fourth largest energy consumer) • Project will include no less that 15mn tons per year of LNG – Train ONE – 5mn tones to be commissioned in 2018 – behind schedule – Gas supplied via Yakutia, Irkutsk and Sakhalin III (major expansion of Sakhalin gas production) • Project composition – Gazprom, Japanese Ministry of the Economy – Russian Agency for Natural Resources and Energy • Current status – feasibility study completed, MOU’s signed (2012) and preliminary works underway
- 12. Baltic LNG &Regas Terminal The Baltic LNG Terminal ‘At a Glance’… • To be built close to Ust – Luga seaport – current status is investment stage • Being built in cooperation with Government of Leningrad Oblast – looking for investors to take 49% investment stake • Supplied with gas from UGSS • Aim to be completed in 2018 – main markets to be European (small and large scale) with Latin America designated as potential targets • Ensures security of supply to Kalingrad Oblast – good potential for bunkering and small scale LNG in Baltic region • Plant to boast 10mn tons of LNG with possible expansion to 15mn tons per year if decision made to expand production Proposed LNG Regas Terminal – Kaliningrad • Designed to ensure Kaliningrad’s energy security – Home of Baltic Fleet • New terminal will link to underground storage facility at Kaliningradskoye • MOU signed between Kaliningrad Oblast Government and Gazprom – planned that late 2017 terminal will be able to receive first deliveries – total capacity will be 9mn tons a day • Current status – planning and land allocation
- 13. Yamal LNG –Sabetta - 2016 Yamal LNG Overview: • Operator – Yamal LNG – JV with Novatek (60%) / Total (20%) and CNPC (20%) • To be supplied by S.Tamboy and Shtokman– one of world’s largest fields at estimated 3.8 trillion cubic feet of natural gas – collaboration between Statoil, Total and Gazprom • Located on Ob River – ice locked for nine months of the year • Key capacity to include output of 16.5mn tons per year – three LNG trains • 5550 workers involved in projects • Major regional infrastructure inclluding intl. airport, roads and rail infrastrictire • Will be largest Arctic development project with 200 wells, 3 LNG trains and gas storage and processing terminal • Has spurred development of ice-breaker class tankers – each able to transport 170,000 cubic meters • Significant environmental problems – major hurdles to overcome • Funding – suffering from sanctions – RF Government direct investment of 150bn Roubles - $2bn in December • CNPC – Yamal LNG in LNG supply – 20 yr contracted linked to Japanese Crude Cocktail • Linked to development of Sabetta Port – JV with RF Government and Novatek – major hydrocarbonport and settlement • Status – on track
- 14. Conclusions… The Negatives… • East-Westpolitical and business relations to remain strained for some time • Decreasing appetite for sanctions / sectoral sanctions in areas of Europe • Russian economy remains volatile as it re-focuses to diversify partners – return to Western focus highly unlikely • European business remains keen to continue Russian partnerships but hampered by sanctions • Mind change Eastwards with less emphasis on European and US exports – firm focus on APAC region • Until Crimea situation resolved energy relations / access to technology etc will remain limited The Positives… • Despite differences relatively healthy • Projects are continuing – many coming on stream in next 3-5 years • Investment being replaced by Eastern and Chinese partners • Domestic technical abilities improving • Moscow still keen to export to W Europe • Business can still be done – sanctions are largely risk based – domestic governance also improving
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