Foreign Competency Substitution in the Industrial Support of Russian LNG Projects
Key conclusions
Russia must derive as much benefit as possible from Europe’s decision to turn away from cheap gas
“There are some specific questions in relation to European countries. Their policy and statements are a blatant shot in the foot as far as they’re concerned, because the outcome will hit their consumers hard. Nevertheless, they’re stating in every way possible that they want to turn away from cheap gas and transition to more expensive energy sources. Naturally, we cannot forbid Europe from doing this, and we should instead derive as much benefit as possible from it. We should refocus and provide this more costly form of energy by employing our resource portfolio,” Pavel Sorokin, First Deputy Minister of Energy of the Russian Federation.
The global LNG market will grow, and Russia needs to take its share of it
“Whereas we used to think that the global LNG market would reach 500–550 million tonnes by 2030, now the forecasts are higher. In principle, we could base things on 700 million tonnes being reached by 2030–2035. That means we must leverage our resource potential to the greatest extent possible so that we have our share of this market. We believe that 15–20% of the global market is what we should be counting on, regardless of any pressure,” Pavel Sorokin, First Deputy Minister of Energy of the Russian Federation.
“There are a number of ambitious objectives in relation to the LNG sector, in line with the current figures set out in the strategy. We will need to increase production of this product virtually fourfold,” Mikhail Ivanov, Deputy Minister of Industry and Trade of the Russian Federation.
“Russia plays a key role in the global energy mix, although attempts are being made today to limit our options in foreign markets. We are the world’s biggest exporter of gas. And this fuel’s share in the global energy mix is steadily growing. Today it stands at around 23%, and is expected to reach 25% by 2030. This growth will be largely down to liquefied gas,” Leonid Mikhelson, Chairman of the Management Board, Member of the Board of Directors, NOVATEK.
The development of LNG projects will also serve to drive development across a large number of other sectors in Russia
“This sector holds an immense amount of promise for our country. Gas reserves in the Arctic are in the range of 32 trillion. As an example, Qatar – which is a major producer – has its North Field, which had a maximum of 24 trillion. This gives us the chance to build an enormous LNG production cluster. That means tens of thousands of jobs, and a huge springboard for economic growth in Russia,” Leonid Mikhelson, Chairman of the Management Board, Member of the Board of Directors, NOVATEK.
“This is a gigantic, colossal order for a range of industries. <...> It is a very rare thing when a sector is supported by orders over a period of 10–15 years. <...> This represents a chance for industry to benefit from a certain stimulus and a primary customer. Later it will be able to leverage this primary order, expertise, and cash flow. There’s already the potential to use this basis to develop other skills and produce other equipment. As we know, in order to drive the sector forward, you always need a principal customer to provide a stable source of support. LNG can be the thing which drives development across a great many other sectors of the economy,” Pavel Sorokin, First Deputy Minister of Energy of the Russian Federation.
PROBLEMS
Russia needs to develop its own technology for LNG projects
“In light of the departure of foreign manufacturers, it has become of key importance to address the need to have dynamic LNG equipment and LNG pumps. Without concerted action on these matters, we will not be able to reach the volumes we have spoken about today,” Dmitry Evstafiev, Chief Executive Officer, NIPIGAS.
“The country needs to have its own technology. It must be technologically independent in relation to other countries in the midst of these changes. We need to build the equipment and production capabilities required to meet the demand... of companies that want to sell liquefied natural gas,” Andrey Nikipelov, General Director, Atomenergomash.
“We don’t need to be looking at the task facing us as import substitution and localization. It is in fact the creation of new technology with new equipment. And if we simply copy what our Western colleagues did, I don’t think we’ll find ourselves on the fastest or best path,” Yury Skrynnik, Managing Director, HMS Compressors Business Unit (HMS Group).
“Atomenergomash have made a good [successfully tested – ed.] cryogenic submersible pump, and are offering it for almost twice as much as what we bought it for yesterday from Japan. This is down to conditions surrounding the provision of subsidies and uncertainty regarding the number of orders. <...> If we show that this is not an order for one line, but for 10, then I hope the prices will be very different,” Leonid Mikhelson, Chairman of the Management Board, Member of the Board of Directors, NOVATEK.
Government support is required to achieve accelerated development for LNG projects
“In other countries the industry took shape over the course of several decades. We do not believe it is possible to accelerate production of such sophisticated equipment without government support. The interrupted LNG projects around the world will take advantage of the current price surges, and accelerated production will begin in the coming years. The market window of opportunity for Russian LNG will shrink,” Leonid Mikhelson, Chairman of the Management Board, Member of the Board of Directors, NOVATEK.
“We believe there should be a review of how funds are allocated for R&D. Around the world, these tasks are fulfilled through venture investments. In principle, the allocation of subsidies should be similar to how startups are funded. Instead of looking at proceeds coming from the sale of equipment, the actual use of equipment in LNG projects should be the key factor. Reporting should be simplified, we believe,” Leonid Mikhelson, Chairman of the Management Board, Member of the Board of Directors, NOVATEK.
SOLUTIONS
The government is considering whether to expand support for the development of LNG technology
“In principle, all forms of support are running efficiently. That includes support for R&D, and scaling up production. We should also not forget about the many programmes offered by the Industrial Development Fund, including the tools that we introduced in February as part of the government’s anti‑crisis plan,” Mikhail Ivanov, Deputy Minister of Industry and Trade of the Russian Federation.
“We have a tax deduction scheme in place entitled 3210, covering investment in R&D with a coefficient of 1.5. <...> Today, each rouble invested in R&D makes it possible to subtract this sum from the tax base with a coefficient of 1.5. Let’s look at ways of expanding the areas of technology in which this support is provided, and create a separate section dedicated to LNG technology,” Mikhail Ivanov, Deputy Minister of Industry and Trade of the Russian Federation.
Lower prices for products developed domestically will help consolidate demand
“We need help in consolidating demand. The partner-focused approaches demonstrated by NOVATEK make us confident that this order will come. For our part as the ministry, we are already acting not so much as a regulator as a partner. This should create the environment needed for Russian industry to make the products needed at an accelerated pace,” Mikhail Ivanov, Deputy Minister of Industry and Trade of the Russian Federation.
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