On January 8, Gazprom launched Russia’s first FSRU to ship liquefied natural gas to the Kaliningrad region. The vessel Marshal Vasilevskiy, constructed by South Korea’s Hyundai Heavy Industries, is able to transport up to 3.7 billion cubic meters (bcm) of gas to Kaliningrad which is enough to cover any potential increase in the regional gas demand. Russia’s western exclave is a dynamic and rapidly growing regional gas market – last November Governor Anton Alikhanov said the regional gas consumption would reach 2.48 bcm in 2018. Furthermore, gas demand is expected to reach at least 3 bcm/year in the near future, while pipeline transiting via Lithuania has a (limited) operational capacity of 2.5 bcm/year. Therefore, a new source of gas – in the form of LNG – will mitigate potential deficit in the region.
The Marshal Vasilevskiy’s arrival in Kaliningrad does not mean immediate cessation of gas transit via Lithuania. In 2015 Gazprom signed a transit contract with Lithuanian natural gas transmission operator Amber Grid which will be valid until 2025 and most probably includes a “ship-or-pay” clause. Therefore, Gazprom has either to ship a certain amount of gas (certainly well below 2.5 bcm) via the Lithuanian grid or pay Amber Grid a penalty. However, as a new source of supply, the Marshal Vasilevskiy will guarantee uninterruptable flow of the “blue fuel” – in case of interruption of the gas transit from Lithuania – and cater to an additional demand in the region.
Currently, such supplies would be more expensive than piped gas but the project economics might be improved by additional services provided by the FSRU Marshal Vasilevskiy. International vessels’ owners already have to comply with greenhouse gas emissions limits recently introduced for the maritime transport in the Baltic Sea. The new regulations are forcing them to switch to an environmentally friendly fuel – liquefied natural gas, thus forcing LNG supplies to reconsider their business model.
Virtually all Baltic countries are developing bunkering infrastructure across the region to cater for the nascent LNG marine fuel market. Lithuania’s LNG plant is likely to be involved in the marine bunkering, Estonia follow the lead. Russia’s Northwest is home to a number of planned or constructed LNG projects. For example, Gazprom’s Portovaya 2bcm/year LNG factory situated in the Leningrad region is expected to be operational by the late 2019. Another liquefaction project (with a total capacity of 0.9 bcm/year), a joint venture between Novatek (51%) and Gazprombank (49%) in Vysotsk, Leningrad region, is expected to be operational in the early 2019. The plant’s capacity might be extended to an additional 0.9-1.2 bcm/year. On October 17, Novatek and Fluxys announced a plan to build a 0.4 bcm/year mid-scale LNG transshipment terminal in Germany’s Rostock. The LNG Terminal will also have the option of bunkering and loading of bunkering vessels. Gazpromneft – via its brunch Gazpromneft Marine Bunker – is planning to be present in the market as of early 2021. The company plans to charter an ice-class LNG bunker vessel when its construction is completed by the end of 2020.
Last but not least: natural gas volumes above the ship-or-pay commitments foreseen in the Gazprom – Amber Grid contract could be already sent westwards to the European Union. According to Eurostat, natural gas imports to the EU increased by 8.3% in 2017 to 312.1 bcm and reached an all-time high of 168 bcm in Gazprom’s exports to the European Union. In 2025, when Gazprom’s transit contract with Amber Grid will expire, EU’s import needs – according to the IEA estimates – will reach 409 bcm/year. Despite increased demand for the imported gas, Europe’s key suppliers will be fiercely competing for a market share. Under these circumstances, having a possibility to ship additional 2.5 bcm/year of natural gas is quite a valuable asset.
To sum up: the FSRU Marshal Vasilevskiy’s arrival in Kaliningrad is an attempt to score several goals with one shot: the new supply source guarantees security of supply, brings additional gas volumes to the regional market, fuels the sea vessels and potentially frees pipeline export capacity towards the European Union.
