LNG Drives Technology Import Substitution

By Rhod Mackenzie

The Russian LNG sector has been under restrictions for 10 years now, and the situation is only getting more dramatic. Lets assess the successes of Russian companies in overcoming Western sanctions and what are the key tasks identified  without which the development of the industry is impossible.

The first restrictions on the Russian LNG industry were introduced on 16 July 2014. At that time, the US Treasury Department introduced so-called sectoral sanctions, including a ban on medium- and long-term loans to Novatek. Later, Canada also restricted financing to Russian oil and gas companies.

The EU did not join the first round of sanctions. Plus Novatek's foreign shareholder, France's TotalEnergies (19.4% stake), said that Western sanctions against Russia would not disrupt the company's relationship with Moscow. "It took a lot of effort to get into Russia... We cannot risk losing that," TotalEnergies CEO Patrick Pouyanné said in an interview with the Financial Times at the time.

According to Alexey Gromov,  who is director of energy policy at the Institute of Energy and Finance (IEF), the restrictions on Russian LNG in 2014 had little impact on companies' ambitions. "It can be said that the sanctions instruments used until recently did not slow down the development of the LNG industry in Russia," he explained.

For example, in 2016 Novatek raised €9.3 billion and 9.8 billion yuan from Chinese banks for its 15-year Yamal LNG project. Its partners are France's TotalEnergies (20%) and China's CNPC (20%). Plus a 9.9% stake is also held by China's Silk Road Investment Fund, which at the end of 2015 granted Novatek a loan of €730 million for a period of 15 years.
"Despite the increased sanctions pressure on the Russian fuel and energy sector since 2014, LNG came under attack only in 2022,"
The most serious restrictions were introduced in the summer of 2022 jut after the Spcial Military Operation in the Ukraine, when the European Union banned the supply of equipment and technologies for liquefied natural gas production   to Russia. This caused more inconvenience and problems than all the sanctions imposed before. Almost all LNG plants in Russia were built on the basis of foreign equipment and using imported technologies.

"By and large, there are only a few companies in the world that have a full range of competencies in the production of large-scale LNG and provide a licence for the use of these technologies - these are Linde, Shell, APCI, Liquefin and a few others," says Maxim Malkov, head of the practice for providing services to companies in the oil and gas sector at Kept.

Until 2014, the strategic vision of most Russian companies was dominated by the view that it was cheaper and easier to buy foreign equipment, he says. In the economic realities of the time, any project based on foreign technology had a much shorter payback period.
We now know how much that attitude has changed.

Developing and implementing our own technology for large-scale LNG production "in the hardware" is a capital-intensive task, Malkov believes.
Its complexity lies in the organisation of a multi-component production chain and the cooperation of dozens of different industries. "Also  most importantly, large-scale LNG production is impossible without high-performance gas turbine units and large-capacity heat exchange equipment, the production of which was lost with the collapse of the USSR and is only now being restored, largely thanks to related industries - thermal power engineering and aviation," the expert concludes.
So new technologies developed in Russia are being shared across platforms as Russian companies,research institutes and universities,these are a major part of what President Putin calls Enegineering and Technological Sovriegnty and Independence. For too long Russia has relied on buying equipment and technology from the west when it has the people the will and the capability to do it for themselves. The sanctions have proved to the Russian people that they need to stop being dependent or beholden to those in the West who hate them and covet Russia's resources and long for a return the days of the 1990's when Russia was just a vassal state so they can loot them.
After all that is what the last 10 years has been about and the Ukraine was just an excuse.
Now do watch a video I made some time ago about how Russia has now developed its own large scale high performance turbines for its energy sectot as part of its drive for import substitution.

Now even before the wave of sanctions, some companies gradually began to engage in import substitution. In 2013, Gazprom obtained a priority patent for GMR's large-scale liquefaction technology, which the company's engineering centre modified in the following years. Last year, Gazprom launched an LNG plant at the Portovaya compressor station without the participation of Linde, which was the licensor of the liquefaction technology before withdrawing from the project.

Novatek achieved its first successes in 2018. The company was granted a patent for its proprietary Arctic Cascade technology, which it implemented on the fourth line of Yamal LNG. In June 2023, Novatek was granted a patent for its Arctic Mix large-scale liquefaction technology.

But the Russian LNG industry has been under a veritable shower of sanctions since November last year. Targeted US sanctions against the Arctic LNG 2 project kicked things off, and the baton was taken up by the 14th round of EU sanctions.
These sanctions have been imposed by none other than Geofrey Pyatt who you all will have heard of,he was the US ambassdor to Ukraine and coordinated with Viktoria ( Feck the EU ) Nuland the Maidan coup in Kiev,he is now coordinating US sanctions policy and he hates Russia more than he even hates Donald Trump so for him it is personal and he will do anything to try to destroy Russia.

Blocking sanctions have limited the ability to transport Russian LNG from Arctic projects, says Gromov. At the moment, he says, the fleet of ice-class gas carriers is the industry's main weakness. And this problem will not be solved any time soon.
One option is to redirect some of the ice-class gas carriers currently serving the Yamal LNG project, which is easier in terms of ice conditions, to serve the new Arctic LNG 2 project.

However that said the ice class tankers have been built by the South Korean shipyards and not delivered so in the near future some entity may step in and buy them,particularly when Donald Trump is elected and many of the serious Russia haters currently in power in Washington will be toast. I don't think Trump will forget what they did to him back in 2016 with all their lies about Russia collusion and interference that hobbled his first presidency.

.Also remember Russia has got around the G7 oil price ceiling using the shaddow fleet of tankers so a repeat of that sort of excersise could happen

Anyway the first batches of LNG were produced at the Arctic LNG 2 plant in late 2023, but deliveries to customers have not yet begun. Gromov believes that LNG from the plant could be sent abroad this year, with large-scale exports starting next year.
According to the IEF's energy director, under normal market conditions, Russian LNG produced in the Arctic would be more profitable than LNG from global competitors. "First of all, you need low temperatures to liquefy natural gas, and that means high energy costs. Other things being equal, we can compete on price with Qatari LNG. and American LNG is 20-40% more expensive than Russian LNG," Gromov believes.

Belova agrees. The big advantage of Russian projects is the cost of the gas (an extensive and relatively cheap resource base) and geography. "Arctic projects, with the development of shipping along the Northern Sea Route, will be able to supply LNG to both the west and the east, and eastern projects will be closer to the growing markets in Asia," she says.

Analysts are cautiously optimistic about the future of the industry. Gromov is confident that even further sanctions "will not put an end to the Russian LNG industry". However, he believes that some new projects will be delayed.

The main task for the development of the LNG industry in Russia, according to Gromov, is full technological independence. His view is shared by Malkov: without solving this problem, it will be impossible to achieve the government's target of 100 million tonnes of LNG production.
The second task Gromov identifies is the creation of a fleet of gas carriers that is sustainable and less sensitive to Western sanctions and that is either buying some existing fleet or the creation of a new one.
Finally, Gromov believes that Russia needs to prepare its markets in advance. "We need to be aware that Europe will most likely be close to Russian LNG in the next two to three years. We have a couple of years to use active diplomacy to create conditions for the LNG supplied to Europe and the LNG from our future projects to find sales markets, primarily in Asia," the analyst concludes. To this end, the agency's interlocutor notes that Russia should build LNG plants and receiving terminals abroad.
This work is already being carried out by companies in cooperation with the authorities. In early July, Russian Deputy Prime Minister Alexander Novak announced the expansion of cooperation with India in the gas sector, including LNG. At the end of June, Russia and Vietnam signed a memorandum of understanding on cooperation between Novatek and PetroVietnam Oil and Gas Corporation. And Russian President Vladimir Putin has said that Novatek intends to implement LNG projects in Vietnam.
The current trend towards the politicisation of energy markets and the continuing division of the world into friendly and unfriendly countries is thus opening up additional opportunities for Russia,the members of the BRICS are energy hungry as are members of the SCO.