Experts Call Russian Exclave’s FSRU Plan a “Gimmick”

Russian gas giant Gazprom announced South Korea’s Hyundai Heavy Industries has won the Gazprom Flot tender for the construction of the Kaliningrad floating LNG terminal however this news has left many experts scratching their heads.

Gazprom Flot is a secondary company of Gazprom.

“Are they really planning this? Frankly, I have not heard about that yet. If this turns out to be true, it would a weird enough as there is a sufficient number of liquefied gas terminals in the region. Besides, the Leningrad (St. Petersburg) authorities are seriously considering construction of a LNG facility, so I don’t get what the Kaliningrad LNG facility would be good for,” Mikhail Krutikhin of the RusEnergy to Natural Gas Europe.

Other bidders for the tender included Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries.

A projected 3.5 km undersea pipeline will link the floating storage and re-gasification vessel with the supporting infrastructure on shore near the Kulikovskaya settlement at the southern end of the picturesque Curonian Spit.

The contract for the facility is said to be signed this month, with the Korean terminal to be delivered by November 2017.

Gazprom noted on its website that $294.77 million Kaliningrad facility may be the first gas provider for the region, but will be “subsequently replaced by the Baltic LNG project in Leningrad.”

“Indeed, the Leningrad authorities are seriously considering an LNG facility. It would serve as major LNG hub where a handful small-size gas tankers will be mooring and from which gas would be transported to other Baltic ports. So in the context, any talks about an LNG terminal in Kaliningrad remain a conundrum to me,” Krutikhin said.

On the other hand, he says he would not be “very surprised” if the Kaliningrad LNG facility plan turns out to stay on the desk.

“Gazprom has a tendency to exaggerate and expedite things,” the Russian expert said.

“Recently, for example, it said the Leningrad (Saint Petersburg) LNG terminal is shaping but, but when we checked it, it turned out that the construction has not been materializing yet. So, most likely, the Kaliningrad thing is about propaganda,” the consultant insisted.

One of the recent Hyundai Heavy Industries’ deliveries were for Lithuania. The vessel was inaugurated last November in the Lithuanian seaport of Klaipeda.

Arvydas Sekmokas, the former Lithuanian Energy Minister, now an energy consultant, believes that Kaliningrad, “if wanted,” could successfully use the capacities of the Lithuanian liquefied natural gas terminal.

“But, certainly, it is hard to see happening amid the ruffled geopolitics, though, economically, it would be a better thing for Kaliningrad than building its own thing,” Sekmokas told Natural Gas Europe.

He believes the Kaliningrad plan is part of the “paranoid assumption” that Lithuania might cut gas supplies to the Russian enclave.

“This is nonsense. Lithuania has never sent such a message. So I see the Kaliningrad LNG news as a gimmick, akin to the lauded but never really pursued nuclear power plant project in Baltijsk in the region,” the former Minister said.

It is not the first time Russia announces of its LNG plans in the enclave of Kaliningrad.

Back in 2013, Gazprom CEO Alexey Miller, in a meeting dedicated to increasing the security of gas supply to the Kaliningrad region which took place at the company’s headquarters, hinted the company is mulling an LNG facility in the region.

The intention followed Gazprom’s commissioning the same year of the first phase of the Kaliningradskoye underground gas storage facility boasting the capacity of 52 million cubic meters as the maximum daily deliverability is said to be 4.8 million cubic meters.

After Russia announced the cancellation of the South Stream project near the end of 2014, Russian authorities and President Vladimir Putin himself started emphasizing the need to pep up LNG project development in Russia.

Boosting LNG production has been on the Russian agenda for a long time, though in reality Russia operates only one plant for LNG exports, a Sakhalin-based facility with a reported annual capacity of 9.6 million tons of LNG.

 In October 2014, Gazprom and Shell agreed on expanding the LNG plant.

Russia’s Yamal LNG project, envisaging the construction of an LNG plant with annual capacity of 16.5 million tons per year, is the most tangible current Russian LNG project.

French oil giant Total is to pursue its implementation if China allots a record $15 billion loan for the project in the Yamal Peninsula in northern Siberia.

According to Russia’s Vzglyad newspaper, if China lends the money, the deal will become the largest ever to be funded by Chinese banks.

Meanwhile, other Russian LNG projects have been gathering dust in the drawers.

With the majority of them slated for the Baltic basin, the most plausible for now seems to be in Ust-Luga in the Leningrad region.

The first phase of a 10 million ton LNG plant was supposed to be built in 2018, but has been rescheduled for later.

Acknowledging the necessity to develop the LNG sector, Russia has just held the second international congress LNG Russia Congress 2015.

Most of the discussions focused on the need to develop the sector and prospects of Russian LNG projects as well as their competitiveness in the global LNG industry.

Should Kaliningrad proceed with the FSRU construction, the floating storage and regasification unit has be a similar to the vessel in Lithuania, believes Sekmokas, the former Lithuanian Energy Minister.

“It remains to be seen how big the ship will be, but the Russian region does not need a big ship, if any. Especially that Kaliningrad has modest-size underground gas storage, which can be expanded when it is required, and which definitely increases the region’s energy security. Therefore an expensive FSRU and it supporting infrastructure on land would be way too non-economic,” the expert told.