Liquid gas provides pipeline alternative

Global players are looking for ways not to repeat last month's gas crisis. An alternative to pipelines could be delivering liquified natural gas with tankers.

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February 18, 2009, 1:32

Last month, as Moscow and Kiev argued over gas prices, the EU saw its supplies from Russia severely disrupted.

Moscow accused Kiev of siphoning off gas destined for Russia’s European clients and questioned Ukraine’s credibility as a transit route to the EU.

"The January events in Ukraine proved that dependence on transit countries is very harmful politically, economically and financially," said Igor Tomberg, Chief Researcher at Energy Studies Centre.

Moscow is looking for other transit options to Europe. The alternatives are two new pipelines Russia is building to by-pass Ukraine. The South Stream would go under the Black Sea and the Nord Stream would run under the Baltic Sea.

But as Europe has often spoken of reducing its energy dependence on Russia, Moscow is also looking for new clients - and new ways of sending them gas. So far it’s only been pipelines. However, now tankers are coming into play as Russia is launching its first plant to liquefy natural gas.

Said Igor Tomerg: "Pipelines bind the exporter to the supplier, leaving you no flexibility. We are a great gas power and using nothing but pipelines is no good."

The plant’s opening marks the culmination of Sakhalin-2, one of the world's biggest oil and gas developments led by Russia’s energy giant Gazprom.

The plant was built on Russia’s Sakhalin Island. It will receive natural gas from offshore fields via a pipeline. The gas will then be converted to liquid for ease of storage and transport. The reduction in volume makes it more cost-effective to carry over long distances where pipelines don't exist. Every year the plant is set to produce enough liquefied natural gas or LNG, to supply the entire 3 year need of a country like Bulgaria - one of the worst hit in the recent Russian-Ukrainian gas dispute.

Under contracts up to 20 years, Russia’s LNG will go to Japan, South Korea and the US, seeing Russia take off as an important energy player in the Pacific.

"It would be hard to build pipelines to Japan or the US but LNG will open up a very promising market to us. Gas consumption there is only set to grow," said Sergey Pravodudov, Director of the National Energy Institute.

Moscow is keen to prove its reliability as an energy supplier and to diversify its exports. The new LNG project is set to do just that.

With the launch of its first LNG plant, Russia is breaking into a new market and can finally begin, experts say, to fully develop its potential as a major energy power.

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