Russian Gas Leaders Raise Exposure to Petrochemicals

Russia’s top natural gas producers, Gazprom and Novatek, are ratcheting up investments in the petrochemical sphere, now regarded as essential if they want to diversify their core profile. Last week Gazprom launched the giant Amur gas-processing plant in the Far East and signed a key construction contract for the even bigger Ust-Luga plant in northwestern Russia, scheduled in 2024 at the recent St. Petersburg International Economic Forum. It also inked a preliminary contract for supplying liquefied petroleum gases (LPGs) from the Astrakhan plant in southern Russia to the proposed Astrakhan gas chemical complex that could materialize around 2027. Novatek, Russia's LNG champion, signed a memorandum of understanding with Sberbank and Gazprombank on financing the construction of a gas chemical plant on Yamal Peninsula. The company plans to sign pre-feed (front-end engineering and design) contracts for this ammonia-producing project and take a final investment decision in the first half of 2022, Novatek boss Leonid Mikhelson told a briefing at the forum. Moscow is seeking to monetize as much gas as possible before the future of fossil fuels grows any dimmer on the backdrop of the carbon-free energy transition, so it is lending support to new petchem, as well as LNG, projects. This is prodding investors to line up at government offices with various schemes (NC Feb.4'21). Gazprom’s and Novatek’s plans often compete with each other for resources, forcing them to appeal to the Kremlin for informal arbitration (NC Apr.22'21). Gazprom, for instance, appears to have post a victory in keeping the giant Tambei field on Yamal Peninsula for itself so that it can supply the gas to Ust-Luga. This has greatly displeased Mikhelson, who had wanted to buy the 5.2 trillion cubic meter field for Novatek’s LNG expansion plans. He criticized Gazprom’s choice in St. Petersburg. “Under the government’s ruling, the Tambei group of fields [must produce] 20 million [metric] tons per year of LNG by 2030,” he said, referring to the long-term LNG development program approved in March. Gazprom’s Ust-Luga gas-processing plant will have an LNG facility, but the capacity will only be 13 million tons/yr. “I’m not talking about figures. It’s about logic. Transport gas more than 2,000 kilometers to liquefy it there? Why not liquefy it on site?” Mikhelson said. For its part, Novatek wants to produce up to 70 million tons/yr of LNG in the Arctic by 2030 and needs to make sure it has enough proven and easy-to-recover reserves to support these plans. Mikhelson did, however, admit that building large and complex petchem plants in the Arctic is too costly -- the same argument used by Gazprom to justify plans to send Tambei gas to Ust-Luga. Novatek doesn’t plan to produce polymers in the Arctic. Rather, the company believes it could send ethane by the sea to petchem plants similar to those that Sibur plans in the Amur region, Mikhelson explained. He is a key shareholder in both Novatek and Sibur. Novatek plans “simpler” petchem projects in the Arctic -- ammonia and methanol, according to Mikhelson. The planned ammonia plant in Sabetta, the home port of the flagship Yamal LNG project, will likely replace the 5 million ton/yr Obsky LNG project, as it will use its resource base. Obsky has been delayed due to difficulties with scaling up Novatek’s Arctic Cascade liquefaction technology for its two 2.5 million ton/yr trains. The ammonia plant will fit into Novatek’s plans to decarbonize its Arctic LNG production, as it sees ammonia as a way to transport hydrogen, primarily to the promising Asian markets (NC Jun.10'21). Gazprom doesn’t plan to invest in state-of-the-art petchem projects cranking out polymers either, but instead it finds partners that could do this and gets them to buy ethane as feedstock from its gas-processing plants. For example, Gazprom’s Amur gas-processing plant will supply feedstock to Sibur’s Amur gas chemical complex, Ust-Luga will supply the nearby Baltic Chemical Complex of partner RusGazDobycha, and the operational Astrakhan gas-processing plant, which Gazprom is now upgrading to start producing ethane and LPG, will supply the nearby Astrakhan gas chemical complex of little-known Caspian Innovation Co. The launch of the Amur plant marked Gazprom’s strategic shift toward gas processing, which stems from the company’s upstream expansion in East Siberia, which boasts ethane-rich gas. Gazprom is also drilling deeper in ethane-rich deposits at legacy fields in West Siberia's Nadym-Pur-Taz area and new fields in the West Siberian Arctic (NC May6'21). When ramping up to the full 42 billion cubic meter per year capacity in 2025, the Amur plant will increase Gazprom’s total gas-processing capacity by 80%. Gazprom has launched the first of six 7 Bcm/yr gas-processing trains at Amur and wants to launch two more later this year, before adding one train a year in 2022-24. The plant will refine East Siberian gas into 38 Bcm/yr of dry gas for exports to China. It will produce 2.4 million tons/yr of ethane, around 1.5 million tons/yr of LPGs and some 200,000 tons/yr of pentane-hexane fraction. Importantly, it will become the world’s largest helium plant with a nameplate capacity of 60 million cubic meters per year. Construction of the bigger 45 Bcm/yr Ust-Luga plant started in late May, but the key engineering, procurement and construction contract with Germany’s Linde and Turkey’s Renaissance Heavy Industries was signed in St. Petersburg in early June (NC May27'21). Vitaly Sokolov, Moscow