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Russia may build Black Sea LNG plant

Prime Minister Vladimir Putin has instructed the Energy Ministry to draw up plans for the construction of an LNG plant on Russia’s Black Sea coast in addition to the South Stream gas pipeline project.

“Please look into the construction of a gas liquefaction enterprise in southern Russia on the Black Sea coast as a potential element in the implementation of the South Stream project,” Putin said at a meeting with Energy Minister Sergei Shmatko.

Gas could be supplied to the plant by Gazprom (RTS: GAZP) as well as other companies with operations in southern Russia, particularly Lukoil (RTS: LKOH), and Rosneft (RTS: ROSN), a source at one of the ministries disclosed.

Putin and Shmatko discussed progress in the South Stream project.

Russia still hasn’t received final clearance from Turkey to lay the pipeline in the Turkish sector of the Black Sea, Shmatko said.

“We received the necessary provisional permission to conduct the relevant geological and seismic surveying. That will be serious work, but I stress, the permission is provisional in nature. After the surveying is completed, we will still have to get permission from Turkey for full-scale implementation of the pipe-laying project,” Shmatko said.

Turkey was to have provided final clearance to build the pipeline by November 1, 2010, under existing agreements.

Russia has had better success in talks with the European Commission on South Stream and on the development of alternative supply routes.

“We have finished creating the required legal base, and also concluded intergovernmental and corporate agreements with the state participants in the project. We determined that South Stream would be presented in Brussels in the second half of April with the European Commission’s participation. That is a very positive signal, because until recently we didn’t have a healthy dialog from the standpoint of the project’s perception in Europe,” he said.

Russia and the European Commission have already discussed the idea of delivering LNG to Southern Europe, and the creation of LNG capacity was discussed at Russia’s most recent meeting with the European Commission.

Putin pointed out that the planned LNG complex on the Yamal Peninsula is another alternative supply source for consumers in Europe.

“Look into the potential for using the future gas liquefaction capacity on Yamal within the framework of the project recently commenced by NOVATEK (RTS: NVTK) and French Total. This can all be done if Gazprom is included. The cost of transportation from that region to the European market and to other global markets must be calculated. We both understand that the construction of liquefaction plants opens up great opportunities for diversifying export markets,” Putin said.

He also directed Shmatko to analyze the simultaneous exports of Russian pipeline gas and LNG to Europe. “Delivery by means of LNG carriers is becoming competitive with gas pipelines. Please study this situation and report back to me in a week,” Putin said.

Russian LNG capacity must be coordinated with the construction of regasification capacity in Europe, he added.

Shmatko said that work is already underway. “Construction of regasification terminals in Europe and Southern Europe is a very promising area. The E.U. Energy Summit held on February 4 gave a green light to the development of that infrastructure. In that regard it seems to me that the Yamal LNG project could be synchronized seamlessly with the plans for developing energy transportation infrastructure in Europe,” Shmatko said.


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