The Baltic will be opened to China – Newspaper Kommersant No. 48 (7493) of 03/22/2023

Russia is trying to attract Chinese partners to the construction of an LNG plant and a gas chemical complex in Ust-Luga, it turned out during Xi Jinping’s visit to Moscow. After the imposition of EU and US sanctions, the project faced a number of technical difficulties and lost key suppliers. From the words of the Deputy Prime Minister it is not clear whether we are talking about the entry of Chinese partners into the capital of projects or only about the supply of equipment. According to analysts, due to the high sanctions risks and the remoteness of the Baltic from the Asia-Pacific market, Chinese companies should rather be interested in engineering and equipment supplies.

Following the talks between the heads of Russia and China, Deputy Prime Minister Alexander Novak said that Moscow would like to involve Chinese partners in the construction of an LNG plant and a gas chemical complex (GCC) in Ust-Luga of Ruskhimallyans (a parity joint venture between Gazprom and Rusgazdobycha) . “Now we are negotiating to attract Chinese partners to the construction of an LNG plant and a mining and chemical complex in Ust-Luga with a capacity of 13 million tons, this is also the subject of negotiations during the arrival of the PRC leader,” the official explained on Channel One.

Mr. Novak did not specify whether it is supposed to enter the equity capital of the project or to attract equipment suppliers.

At the same time, the Deputy Prime Minister stressed that Chinese shareholders are already participating in NOVATEK’s projects Yamal LNG (China’s CNPC owns 20%) and Arctic LNG-2 (CNPC and CNOOC each own 10%).

This is a large-scale project of a gas processing complex (GPC) as part of an ethane-containing gas processing complex (EPEG). GPC should process 45 billion cubic meters of gas per year and produce 13 million tons of LNG, up to 4 million tons of ethane and 2.2 million tons of liquefied hydrocarbon gases. About 18 billion cubic meters of gas after processing is planned to be sent to the gas transmission system of Gazprom. The launch of the first stage of the complex was planned in 2024, the second – in 2025. In addition to the GPC, CPEG also includes a gas chemical complex (operated by Baltic Chemical Complex). The MCC will process ethane obtained from the GCC and produce up to 3 million tons of polyethylene grades.

EU sanctions prohibiting the supply of major equipment for large-tonnage liquefaction to the Russian Federation made it difficult to implement the project. The German Linde refused to carry out work on the design, construction and supply of equipment for Gazprom projects, Ruskhimalliance also had to look for alternative suppliers of gas turbine equipment (see “Kommersant” dated January 30). Gazprom does not comment on the Deputy Prime Minister’s statement.

Sergei Kondratyev of the Institute of Energy and Finance believes that Chinese companies may consider investing in the project, but cooperation in the supply of equipment and engineering seems more likely.

“Due to sanctions risks, the economics of many projects in the production of LNG and gas chemistry now remain incomprehensible, and therefore entry into capital is possible with the provision of state guarantees and the provision of unchanged tax conditions (benefits),” he says. “This practice is not something unique — Exxon followed the same approach when discussing investments in VNHK in 2017-2018.” At the same time, Mr. Kondratiev notes, Chinese companies will be more interested in projects in the Far East and the Arctic with clear sales in the Asia-Pacific region, while projects in the Baltic may face difficulties if the cost of transportation remains high, and EU and US sanctions do not will be removed.

As a result of the meeting between Vladimir Putin and Xi Jinping, no statements were made regarding the project in Ust-Luga. With regard to gas projects, the President of the Russian Federation only vaguely mentioned the Power of Siberia-2 gas pipeline. “Practically all the parameters of this agreement have been agreed upon. This is 50 billion cubic meters of gas,” Mr. Putin said, adding that by 2030 total supplies to China will amount to at least 98 billion cubic meters of pipeline gas and 100 million tons of LNG.

Russia, after the outbreak of hostilities in Ukraine, has lost the EU as a key gas export market and is seeking to increase supplies to China. However, this requires the construction of new pipelines. Deputy Prime Minister Alexander Novak said that Gazprom should as soon as possible ensure the approval of a contract for the supply of gas to China through Power of Siberia-2.

Tatyana Dyatel