INTERVIEW: Shell believes in Russian LNG

MOSCOW, Mar 20 (PRIME) -- Royal Dutch Shell pins high hopes on Russia’s liquefied natural gas (LNG) industry, but is sure the country will face severe competition on the market, head of Shell's new projects department Stuart Bradford said in an interview with PRIME on Monday.

Presently, there is only one LNG-producing facility operating in Russia, Sakhalin 2. It is owned by Sakhalin Energy, a joint venture between Russian gas giant Gazprom with a 50% plus one share, and Shell with 27.5% minus one share. Gazprom plans to increase the country’s LNG output by building the Baltic LGN plant in the port of Ust-Luga in Russia’s western Leningrad Region and by launching the third stage of the Sakhalin 2 facility. Both projects are supported by memorandums between the two companies.

However, earlier in March, Gazprom said that it has postponed both projects: the third part of the Sakhalin project is to be commissioned two years later than was previously decided, in 2023-2024, and the Baltic LNG is now planned for 2022-2023 instead of the earlier projected December 2021-2022, and the date may be additionally revised.

PROJECTS REMAIN INTERESTING

Bradford said his company is fully satisfied with cooperation with Gazprom on both current and future LNG projects. “We give no assessment of Gazprom’s decision (to put off construction of its future LNG projects), but Shell is absolutely happy with the business and technical progress of the project,” he said in an interview at the LNG Congress Russia 2017 conference.

The executive said Shell sees vast advantages for both itself as an investor in the project, and for Russia as a whole. It is able to improve the investment climate, allow local equipment producers and suppliers to develop their businesses and make global gas markets available for Russia.

“The project may encounter some challenges, as energy projects of such a scale provide not only opportunities, but also challenges. At the present stage it is difficult to say what kind of challenges and opportunities will appear. So far we have been absolutely satisfied with the progress and other achievements of our cooperation with Gazprom,” he said.

Bradford added that his company remains interested in implementation of the third stage of the Sakhalin 2 plant and likes a project to build the fourth stage of the facility.

“The fourth part of the facility is technically possible, and it gives us room for making decisions. The fourth stage will have similar advantages as the third: well-developed infrastructure and a brilliant track record of Sakhalin Energy, the operator of the Sakhalin 2 project,” he said, adding that the third stage in a top priority at the moment.

FUTURE OF RUSSIAN LNG

Shell projects a substantial expansion of the LNG market and believes the investment potential of the industry is great. Bradford added that return on investment might be tremendously large.

“Shell forecasts huge market opportunities for the LNG industry, demand for LNG will increase by 4-5% annually until 2030, twice as fast as demand for natural gas. This means it is one of the fastest-growing segments of the energy market, and for Russia -- the world’s biggest owner of gas resources -- it is a fantastic option to enter the market,” Bradford said.

But the executive said competition for this new demand is really strong. “For example, a lot of new LNG facilities were built in Qatar in 1990-2000, Australia arrived on the market later. The U.S. projects might be next in the line, as they have a number of competitive advantages: their construction model implies good development potential, low infrastructure costs and a favorable taxation scheme,” he explained.

Nevertheless, Russian projects still have a great growth capacity, and they may become commercially viable, if a number of requirements are met: “The overall construction value, the taxes, the delivery costs must be lower than in the U.S. Shell is sure that Russia-based projects are able to compete, that is why we actively develop the two promising projects in cooperation with Gazprom,” he said.

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