LNG Gorskaya floats an answer to Baltic bunker-supply needs

This summer brought news of progress on a project that could become the first floating LNG (FLNG) venture in Europe. Starting with one barge-mounted plant of 420,000 tonnes a year, the venture plans to expand to up to three barges with the same capacity, all moored off Gorskaya, north of St Petersburg in Russia.

Project developer LNG Gorskaya aims to open the first phase of the barge-based LNG-production plant as early as December next year and to start to export from mid-2017, subject to financing.

If all goes to plan, the trio of barges will produce nearly 1.3 million tonnes a year (mta) of LNG for export and for sale as marine fuel. Total capital expenditure for the first phase is likely to be around €220 million (US$247.6 million).

The barges will serve a fleet of up to nine bunker-supply ships able to deliver LNG to customers across northern Europe, serving ports across the Gulf of Finland. The venture comprises a floating plant, a pier, a loading rack and connection to the gas pipeline.

The barges’ design comes from the Centre of Marine Technology (Shelf), a consultancy based in Astrakhan on the River Volga in southern Russia that has designed numerous drilling and offshore exploration platforms for oil and gas projects across the country and the former Soviet Union.

LNG Gorskaya is leading the consortium that will carry out the engineering studies and construction work. It will order the barges and assemble the topsides and equipment at the port and will own and operate the FLNG and supporting bunker-supply ships.

Italian engineering company Nuovo Pignone, a subsidiary of GE Oil & Gas, will produce and supply the main equipment for the FLNG, including one main refrigerant compressor, two nitrogen-expander compressors and two LNG boil-off gas compressors for delivery within 14 months.

In May, LNG Gorskaya announced that it has contracted United Shipbuilding Corp to construct three 7,300mᶾ LNG-bunker supply ships for delivery within 22 months, with six options, in an order it values at Rbs5.67 billion (US$85.6 million). It also plans to deploy a fleet of road tankers to deliver LNG to neighbouring Finland.

LNG Gorskaya is reticent about its backers, saying only that the partners have “experience in oilfield activity”. It values the total cost of LNG-related project elements at €600 million.

Location

Director-general Kirill Liats says Gorskaya was an obvious location for such a project as the port was abandoned in the mid-1990s following the break-up of the Soviet Union. Today, the derelict site has abundant land for redevelopment and is just 10km from Russia’s existing northbound gas pipeline.

Earlier plans by BaltGazBunker to set up an LNG export and bunkering venture at Gorskaya for a 2016 start seem to have fallen through.

However, Russia is seeking new ways to get its gas to market and admits it has been slow to tap growing world demand for LNG.

Gazprom has looked into opportunities to build an LNG-export project at the Baltic port of Ust-Luga. And in March, Rosneft signed a memorandum of understanding with Golar LNG to work together on FLNG-related projects.

Rosneft is reported to be studying LNG-export opportunities at Gorskaya, Ust-Luga and Bronka to serve the Gulf of Finland. It confirmed in September that it is unlikely to launch LNG exports from Sakhalin in Russia’s Far East until 2020 at the earliest – at least two years behind schedule.

Mr Liats says there were solid financial reasons to structure the plan around a floating plant. There is “good state support” to build such vessels in Russia, he says. “We are avoiding value-added tax, property tax and salary taxes for the crew until 2037.”

The Russian Maritime Register has “more flexible” requirements than the land-based authorities apply to shore-based ventures, he adds. “We can build a more compact construction – and we calculated that in total our expenditure will be some 30 per cent less, compared with an onshore plant.”

LNG Gorskaya has arranged project finance, securing a loan for 80 per cent of costs from its bank and seeking the balance from investors. “We are still open to extra investors,” Mr Liats says. “And we are negotiating with a shipping company that is interested in becoming both the LNG-fleet operator and our shareholder.”

Planning

Each of the project’s three phases will add one FLNG unit able to produce up to 420,000 tonnes of LNG a year plus three 7,300mᶾ bunker-supply vessels.

“The cost of the first stage will be more expensive than the second or third,” Mr Liats says. “The [cost of connecting to the] gas pipeline, the docking quay and buildings for Customs, border guards, crew accommodation and so on will be approximately €250 million (US$278.3 million).”

Meanwhile, LNG Gorskaya is seeking approval from the Russian Maritime Register for the FLNG and the first three bunker-supply vessels and has submitted a Letter of Intent to Russia’s Ministry of Transport to invest in the port for the land-based element of the project.

It says France-based GTT will provide Mark III membrane-based containment systems for the bunker-supply ships in a technology-transfer deal that GTT president Philippe Berterottière and Mr Liats signed in July.

GTT may also design and supply the materials for the floating plant’s membrane-based containment system. However, the company has not yet responded to LNG World Shipping’s efforts to verify that report.

LNG Gorskaya sees the project as a bunkering hub, supplying Russian gas as marine and transport fuel across Scandinavia and the Baltic.

“We plan to develop this port as a hub for sea-river LNG-fuelled vessels’ reloading operations,” Mr Liats says. “We are also considering a station for high-speed, LNG-fuelled passenger ferries at the port. There is no such transport in Russia and we want to develop sea routes to other Baltic cities such as Tallinn, Kotka, Helsinki, Riga and Stockholm.

“We are open to negotiations with operators of such ferries – but we will ask them to build new LNG-fuelled ferries in Russia… We are also negotiating with German shipping companies that have ordered LNG-fuelled cargo vessels to change their route to include St Petersburg. We can offer them savings on fuel of a minimum €100 per tonne.”