Russian LNG to Face Growing Maintenance Problems

Russia is adapting to LNG equipment sanctions, but it will face growing challenges on the technical side when it comes to maintenance at its key plants, experts said at a webinar organized by freight analytics firm Vortexa last week.

“Challenges on the technical side are massive,” Mehdy Touil, an independent LNG operations specialist, told the webinar.

“Procurement of spare parts … will be a major problem for Russian LNG facilities. The companies are working on developing domestic expertise on that side, but it will take years to implement," he said.

The EU technology sanctions imposed in 2022 in response to Russia’s invasion of Ukraine ban exports of key liquefaction equipment for Russian LNG projects, while US sanctions targeting individual new projects pose risks of secondary sanctions for foreign vendors dealing with blacklisted Russian project operators and contractors.

Sanctions Bite

Novatek’s new Arctic LNG 2 plant, if it finally starts operations at its first 6.6 million metric ton per year train, will face bigger difficulties with maintenance than Russia’s first two large projects — Gazprom’s 11 million-plus ton/yr Sakhalin-2 and Novatek’s 20 million-plus ton/yr Yamal LNG.

Gas turbine maintenance is key. Both Sakhalin-2 and Yamal use Baker Hughes’ Frame 7 gas turbines, which are widely used across the globe, meaning that while there could be problems with procurement of spare parts, it might be possible to get the key parts through back channels, Touil said.

Arctic LNG 2 uses Baker Hughes' new LM9000 turbines, and “there is no way the Russians can get their hands on spare parts for those,” he argued.

The first train started producing LNG in December, but the Arctic LNG 2 project company, blacklisted by the US, has apparently stopped production because it still cannot find a tanker to begin commercial shipments. Sanctions also complicate its search for buyers, although Novatek might be betting on second- and third-tier buyers from China, with no links to the US financial system.

Arctic LNG 2 might get five ice-class tankers out of the 15 ordered at Russia’s Zvezda shipyard, but it is unlikely to happen before summer, Touil said. Six tankers have also been built for the project in South Korea, but they are unlikely to ever operate at Arctic LNG 2 or other Russian projects because of sanctions risks to their owners — Korea’s Hanwha Ocean yard and Japan’s Mitsui OSK Lines, which own three tankers each, Touil said. He suggested that “the only possible and viable way is to employ them as floating storage units or floating storage and regasification units."

Limited Options

“The commissioning of Arctic LNG 2 Train 1 is likely, but further development in Russia is quite unlikely,” Vortexa’s head of LNG, Felix Booth, told the webinar.

Sanctions and the withdrawal of foreign investors and contractors limit financing and construction options, although they do not remove them completely, experts said.

Novatek and Russian contractors have gained valuable experience from completing, commissioning and starting Arctic LNG 2's Train 1 without Western support, Touil said. This is also the case for Gazprom’s 1.5 million ton/yr Portovaya LNG facility, commissioned by the Yamal LNG operators in 2022, he said.

Russian steelmaker Severstal has the capability to manufacture cryogenic heat exchangers, acquired through its former joint venture with German engineering giant Linde, the key technology contractor at both Arctic LNG 2 and Portovaya, which left Russia in 2022.

Also, despite average performance, Yamal LNG’s medium-sized Train 4, built in 2021 using Novatek’s proprietary Arctic Cascade liquefaction process, has proven a successful testbed for the future integration of Russian-made LNG technology, Touil said.

Baker Hughes only delivered four gas turbines to Arctic LNG 2 before EU sanctions came into force, out of a total 21 ordered, prompting Novatek to find alternative solutions using an electric motor drive. “Electrification of future LNG trains provides a possible alternative equipment strategy for Novatek and most probably for Gazprom as well, for its Ust-Luga LNG project,” Touil said.

State Support 

Financing should not be the biggest challenge for new Russian projects, said Kaushal Ramesh, vice president of LNG and head of gas and LNG analytics at Rystad Energy. “Definitely, LNG is a sector of high priority for Russia. We do think that for the projects that are identified as viable, there will be a lot of state support in terms of financing, tax breaks and so on,” he argued.

The biggest challenge will be the abundance of other new projects, globally, Ramesh said.

If the global market remains well supplied and prices stay relatively low, “there would be buyers that no longer want to risk the impact of following through on more Russian LNG,” Ramesh said. “This would be different if we were in a much higher price regimen” where the market would need every new molecule to be balanced, he said.

It is a question of whether there will be buyers able to find a way to work around sanctions, or “maybe we might see a tiered market where some volume operates outside the standard LNG market,” he added.