By John Helmer, Moscow
Gazprom, the Russian gas producer and exporter, is thinking of reviving an old idea to refine natural gas on the Baltic shore and ship liquefied natural gas (LNG) westward to European markets in competition against Qatar and Nigeria. At least that’s what Ziyavudin Magomedov (image right), chairman of the Summa Group, wants everyone to think. Maybe Alexei Miller, Gazprom’s chief executive, too. Since neither Gazprom nor Magomedov’s spokesman at Summa Group, is willing to put a confirmation where the press leak was, noone is keen to believe either of them.
Alexei Miller, Gazprom’s chief executive, was speaking last week at a conference in the Siberian city of Tomsk where in an aside, he said the company might soon announce a new LNG project. “The key concept of Gazprom’s strategy is diversification,” Miller said in his prepared remarks. “Firstly, it is the diversification of our target markets. The Company’s operating principles are very simple: firstly, gas should be sold, then produced, conveyed and sold to consumers. Secondly, it is the diversification of our production regions, transport and finished products to be sold.”
Gazprom already operates Russia’s sole LNG refinery on Sakhalin island, shipping principally to Japan and South Korea. A second Gazprom LNG refinery is already being planned for start-up in 2017 at Vladivostok for shipments to China, Taiwan, South Korea and Japan. The new remark by Miller revived an 8-year old project which Gazprom had agreed with Sovcomflot to build an LNG refinery in the Leningrad region. The plan, intended to deliver LNG to Quebec and New Jersey, was mothballed for its high cost and low profitability.
Now, according to a report from Alfa Bank of Moscow, Gazprom is considering an LNG refinery and port terminal at Primorsk with the Summa Group, backed by Prime Minister Dmitry Medvedev. The idea, in Summa’s version, surfaced in April during a meeting in St. Petersburg of heads of government of the Baltic Sea states. Medvedev gave a speech to the group on April 5, but he wasn’t specific. “The development of new energy production technology and effective use of natural resources is becoming a powerful driver of economic growth,” was the prime minister’s non-committal contribution.
The communique of the meeting refers to the second day of the conference which “focused on round table discussions on sustainable public-private partnership in the Baltic Sea Region (BSR). The representatives of governmental authorities, business community, financial institutions and environmental organizations dealt with topics such as the environmental impact from municipal treatment plants and industry, conversion to liquefied natural gas as a bunker fuel in BSR, biodiversity conservation and maritime spatial planning as a tool for the protection of the environment and rational use of natural resources.”
Summa jumped on the gas for bunker fuel bandwagon last September, when Summa’s chief executive Alexander Vinokurov signed a memorandum of understanding with Gazprom which “fixes the intentions of the parties to arrange cooperation for LNG utilization as a bunker fuel for marine vessels, including those owned and operated by Summa Group. In the first instance, Gazprom Group and Summa Group will consider the possibility of cooperation in the North Sea and the Baltic Sea regions. Apart from LNG supplies for Summa Group needs, the parties will consider potential development of the bunkering infrastructure in the North and Baltic Seas, particularly LNG storage facilities.”
At the time Gazprom refused to elaborate on its intention. In the interval since then Summa has been struggling to show it has the money and the crude oil to make a go of its plan to build a new tanker terminal at Rotterdam. Despite the promotion of the scheme on a visit to the Netherlands by Deputy Prime Minister Arkady Dvorkovich, Magomedov’s advocate in the government, President Vladimir Putin skipped all reference to it on his visit to the country on April 8; his visit itinerary was cut to a half a day and Putin did not go to Rotterdam for a shovel and ground-breaking ceremony planned earlier at the terminal site, nor to a scissors and ribbon-cutting ceremony at Zaandam, where the house Peter the Great built for himself in 1632, has been renovated with money from Summa. When Putin spoke to a meeting of Russian and Dutch businessmen, he said: “Russian energy giants like Gazprom, LUKOIL, Sovkomflot and Atomenergomash, almost all of which are represented here, are working successfully with Dutch partners.” Summa was omitted deliberately.
Magomedov’s ambitions have also drawn a public put-down from Summa’s partner at Primorsk, the state-owned pipeline agency Transneft. The two are in St. Petersburg court over oil delivery contract claims and environmental rule compliance at Primorsk port. They have been fighting over port management at both Primorsk and Novorossiysk. Gazprom’s oil company, Gazpromneft, has announced that it has no interest in Summa’s Rotterdam terminal.
Russia’s first western LNG refinery is already being built by the independent gas producer Novatek, for shipment east and west from the new port of Sabetta, on the Yamal peninsula and the Barents Sea. Due to commence in 2016, Novatek is planning to ship 15 million tonnes of LNG per annum.
So is Gazprom about to announce a second LNG refinery in the west at Primorsk? Gazprom replied: “At the moment, we do not comment on this issue”. Dmitry Minenko, the Summa spokesman, said the same thing.
Alexei Bezborodov, editor in chief of Infranews.ru in Moscow, acknowledges that the economics of LNG production in the Leningrad region have changed since the first Gazprom plan was dropped. “Over the past ten years all of the technologies have changed dramatically. LNG has become safer, the cost of production has decreased dramatically. Therefore the [Leningrad region] project is without a doubt something new.”
Nadezhda Malysheva, editor in chief of the Portnews portal in St. Petersburg, said she was sceptical when Gazprom first presented its LNG for bunker fuel idea, and even more sceptical of Summa’s promotion. “The Summa Group has quite a good PR structure. Long ago the group has said it wants [the LNG] project, and began to offer the version of accommodating [the refinery, terminal] at Primorsk. I do not think this will be a clear-cut solution. Nothing has been decided. Summa offers Gazprom to build this terminal. Gazprom is still deep in thought, ostensibly with a declaration of intent.”
Malysheva adds there are other promoters of schemes to attract Gazprom investment to Primorsk. “About the project I had heard about seven years ago from a completely different group of business entrepreneurs who are close to the port of Primorsk, and have their own territory with access to the sea. So what? They had a discussion and decided, ‘why don’t we call Gazprom’. There are many who want to call Gazprom with projects. But as I understand, Gazprom has not yet finalized its decision. In particular, we are not talking about a full LNG plant, but about a small terminal, which would be tied to the supply of bunker fuel.”