Gazprom may increase the capacity of the LNG plant in Ust-Luga by a third

"Ruskhimalliance" (50% each held by Gazprom and Artem Obolensky's Rusgazdobycha) expects to add another process line to its Baltic LNG project. Thus the capacity of the LNG plant can increase by 6.5 million tons, up to 19.5 million tons. Its launch, according to Kommersant, is scheduled for 2026. Analysts estimate that the construction of the third line could cost the project operator $6-7 billion. "Gazprom" may expand the joint project with "Rusgazdobycha" to build an LNG plant in Ust-Luga from two to three technological lines, a memorandum of intent was signed on October 7 at the gas forum in St. Petersburg. The capacity of the new line may amount to 6.5 million tons per year, while the capacity of the first two lines is 13 million tons per year. Thus, the Ust-Luga plant will almost catch up with the largest project announced in Russia - NOVATEK's Arctic LNG-2 plant for 19.8 million tons. "Ruskhimalliance " plans to build an integrated gas processing and liquefaction plant in Ust-Luga. The source of raw materials for the project was supposed to be old fields in Western Siberia, which produce large amounts of ethane-containing (so called fatty) gas. It is planned to produce up to 4 million tons of ethane and 2.2 million tons of liquefied hydrocarbon gases (LHCG) per year by processing this gas. Most of the processed methane will be liquefied, which will make it possible to produce 13 million tons of LNG per year with two lines. The ethane and LPG produced at the GPP are planned to be used at the nearby Rusgazdobycha gas chemical complex to produce polyethylene and polypropylene. In essence, the gas refinery/ LPG and gas chemical complexes are technologically linked. At the moment it is not clear what the resource base for the third line of the plant will be. Kirill Seleznev, the general director of Ruskhimalliance, separately clarified that this is not about the Tambei field on Yamal, which was recently attributed to the Baltic Sea project. Since the memorandum did not contain any information about the MCC expansion, one can assume that the gas supplied to the third stage of the LNG plant will be dry. Otherwise, Gazprom would have to find a market for the resulting ethane and create a separate infrastructure for its shipment. Ruskhimalliance did not comment further on the timing of the launch of the line and the resource base. According to Ekaterina Kolbikova of Vygon Consulting, the construction of the third technological line with the capacity of 6.5 million tons of LNG may cost about $6-7 billion. After the reconstruction of the pipeline from the Urengoy field to transport fat gas the total pipeline capacity in the Leningrad Region will amount to 194 billion cubic meters, she reminds. Even if the Nord Streams are expected to reach full capacity and internal demand is taken into account, the available pipeline capacity may reach 20 billion cubic meters according to her calculations. For the time being, in her opinion, there are no grounds to say that the MCC will have to increase its capacity along with the LNG plant. Thus, the project could potentially have access to dry gas from other gas transportation systems, such as Gryazovets-Ust-Luga, Torzhok-Leningrad, and Gryazovets-Leningrad. The Ust-Luga plant is located at the western end of the northern gas transportation corridor from Yamal to Europe, which is to become the main route for Russian gas exports after Nord Stream-2 is launched. It should be recalled that LNG, unlike pipeline gas, is not subject to an export duty of 30% of the customs value. This fact allows Gazprom to recoup its investments in the new LNG-Line very quickly - exporting 8.5bn cu m of regasified gas per year and paying $300 per thou cu m, the whole CAPEX is recouped in three years only through saving on duties. In addition, Gazprom gets an opportunity to optimize the Yamal fields and vary the load of Nord Streams - to load them fully when there is demand for pipeline gas and when it decreases, to switch to LNG production and send it to other markets - the UK, Spain or outside Europe.