The Leading Event for the Oil & Gas Sector in the Russian Far East

25 - 27 September 2018

“Stolitsa” Business Centre

Sakhalin Oil & Gas blog

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In the run up to Sakhalin Oil & Gas 2018 ASC was delighted to catch up with Cederic Cremers, Country Chair for Russia at Shell, to ask a few questions about news from Sakhalin-2, global LNG markets, innovation in Russia, and a bit more about his own dreams for the future…

 

  • Are you able to give an update on progress to date with the Train-3 project at the Sakhalin-2 LNG plant?

 

I think the Train 3 project is a great opportunity to expand the capacity of Sakhalin-2 and build on the excellent reputation of Sakhalin Energy, and the excellent customer delivery track record, to utilize the Sakhalin gas resources in the optimal manner. I’m proud to mention, that last year Sakhalin Energy set a record, reaching a 9% share of LNG supply to the Asia-Pacific. 

Sakhalin-2 is one of the most effective LNG facilities worldwide. Proven efficient, these technical solutions will be used for Train 3 as well. This will also help drive down costs and simplify maintenance and operations, making the project more competitive.

 

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The Sakhalin-2 LNG Plant. Photo courtesy of Sakhalin Energy

 

The project design for Train 3 was developed jointly by Russian Giprogazcenter and Shell Global Solutions International. It has been completed last year, and this February it was approved by GlavGosExpertisa, the relevant Russian authority, as required under the Russian law.

So the key deliverable remaining now is to conclude gas sales agreements for the feed gas. Commercial discussions are underway, but I cannot comment on the status.

 

  • What are your predictions for the global LNG market over the next 10+ years? Do you expect a supply glut or a crunch?

 

Due to global population growth and economic development we expect energy demand to grow by about thirty percent between now and 2040. It’s a big challenge to meet this demand and simultaneously manage the climate change and improve local air quality.

In order to address these challenges, our projection shows gas demand (two percent pa) to grow twice as fast as overall energy demand (one percent pa), and LNG to grow again twice as fast as gas, by about four percent per year.  Natural gas is the cleanest fossil fuel, its energy density allows it to be used in all sectors, and it is well suited to act a complement to renewables. LNG provides flexibility and helps solve the issue of dislocation between centres of demand growth and the centres of supply growth.

On the other hand, if we look at committed projects, the LNG supply is not yet projected to grow at the same rate. Potential for an LNG supply shortage may develop in mid-2020’s, and to avoid this new projects are needed to be sanctioned soon to avoid possible crunch.

 

  • Do you anticipate growth in the potential uses for LNG – such as marine transport and truck fleets – and when?

 

I think it is already happening as we speak. We’re already starting to see a step change in LNG as a transport fuel. I believe heavy-duty transport, given its high energy intensity, is very suitable for conversion to LNG rather than electrification, different than for example light mobility. 

We see LNG becoming a serious contender for the choice of fuel across different sectors of the shipping industry, like cruise ships, tankers, container ships etc. In addition to being a cleaner burning fuel, it also provides opportunities for being more cost-competitive. This is strengthened by the recent IMO regulations to go to below half a percent of Sulphur emissions in marine fuel by 2020, and LNG as a marine fuel is effectively Sulphur-free. 

Shell is active in building the infrastructure required for bunkering. As an example, last year we launched the operation of the Cardissa, a new bunker vessel, able to operate across Europe. We work closely with Russian shipping major Sovcomflot, which is building six oil tankers, fueled by LNG to be supplied by Shell. We also chartered two of these tankers to transport Shell crude, and the first, Gagarin Prospect, is to be commissioned this year.

 

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The Cardissa LNG bunkering vessel. Photo courtesy of Shell

 

Another new development, probably less visible, is the use of LNG for heavy trucks, which I also believe will have potential for Russia. In China we already see quite a high penetration of LNG in the trucking sector. Three hundred thousand LNG trucks drive the Chinese roads this year, fuelling at some two thousand LNG filling stations.  The same process is starting to pick up in Europe where there are now over a hundred stations.

The potential of this change is enormous. The entire marine sector and heavy-duty freight sector represents around 1,2 billion tonnes of LNG in potential demand per year.

 

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LNG fuelling station for heavy freight. Photo courtesy of Shell

 

  • How do you think Russian LNG projects will compete with other global LNG exporters, such as the USA, Australia & East Africa, in the coming years? What are the most crucial factors for maximising the opportunities for Russian LNG?

 

This is a great question. Will the next LNG wave come from Russia? I think all the right ingredients exist, but we need to make sure we mix them together.

In terms of geography, Russia is well positioned, being able to supply both to demand in the East and the West. Many of the countries driving gas demand are beyond the reach of Russian pipelines, like India, south east Asia, Latin America, so LNG will be the right solution.

However, competition from other producers will be huge. For example, today in North America alone there are over 60 million tonnes of capacity under construction and over 470 million tonnes proposed, with a highly competitive capital cost and fiscal environment.

To be successful, Russia’s LNG industry needs strong government support, a determination to keep costs down and a helpful fiscal landscape. But I believe Russia is very well positioned to reap the benefit of the rising LNG demand. The abundant gas reserves, a well-developed gas sector, profound expertise, a strong industry workforce and reputation of a reliable gas supplier are Russia’s natural advantages.  The Russian Ministry of Energy has outlined a plan of the total Russian LNG supply to reach some 70 million tonnes per year in the 2020s. I think that’s the right ambition, and we at Shell are committed to working with our Russian partners, in particular Gazprom, to turn this ambition into life.

 

  • Sakhalin has always been at the cutting-edge of innovation in Russia’s oil and gas industry, and this is a major theme at Sakhalin Oil & Gas 2018. In what specific areas of the oil & gas sector do you consider Russia to be the most innovative? Where do you see future innovation in Russia?

 

Russia has got excellent expertise and innovations in many areas of oil and gas production. Examples are multiple, to name a few let’s mention constructing infrastructure in the harshest northern environments or building and operating large pipeline systems.

One of the unique factors of innovation in Sakhalin in my view has happened when you mix the strengths of Russian practices and supplement them with international practices and expertise, incl. from our Asian partners. Marrying the best of East and West. An example is Gazprom transgas Tomsk, our partner and ‘Chief Pipeline Supervisor’, which made it possible to build and safely operate an extremely complicated pipeline system, crossing all sorts of terrains, watercourses and seismic faults. We also used similar approach in Salym, where we have learned a lot from our Russian partners and contractors. 

 

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Marrying the best of East and West: complex pipeline systems in Sakhalin. Photo courtesy of Sakhalin Energy

 

The next step in this direction will be the Baltic LNG project. This May we agreed with Gazprom that we will base the design, engineering and materials and equipment definition for designing and constructing the LNG plant on Russian norms and standards. This will be a world first. It will help create Russian-based LNG technology, standards and industry, and contribute to diversification of Russian economy in general, setting up a pool of Russian vendors, able to compete for future LNG projects around the globe.

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Baltic LNG – boosting Russian technology and innovation. Photo courtesy of Gazprom

 

  • How far can the Sakhalin region develop its role as a centre for scientific and technical innovation in the oil & gas industry?

 

Sakhalin became the testing ground for many new technical solutions, practices and achievement. To name a few - the first in Russia offshore oil and gas production; the first LNG plant; complex integrated projects in harsh and wide-ranging conditions with lots of environmental limitations, opening of a new important energy source for the whole region.

But most importantly, in my view, Sakhalin served as a model for the joint work and co-education of the Russian companies and their partners from many other countries. Sakhalin projects’ successes root in deeper international cooperation. I am sure new achievements are yet to come, and we in Shell are committed to supporting them by fully sharing our expertise and experience.      

 

  • How has your career path at Shell brought you to Russia?

 

I worked in Shell in different roles and in different areas. Having started in the retail business, I moved to exploration and production for a considerable time. Then I worked in chemicals, leading our chemical business in Europe, and afterwards returned to Upstream and Integrated Gas. During my time I’ve worked in Europe, in Africa, North / Latin America, Asia and now in Russia.

For me it is quite exciting to be the Shell Country Chair in Russia, looking after all the businesses we have in the country, ranging from Upstream production all the way to our retail customers. It is an opportunity to use my diverse experience across the value chain and bring it all together in a country so important for our industry and for our company.

 

  • If you weren’t involved in the oil & gas business, what would you be doing?

 

If I was not working in this industry, it would certainly have to be an industry that has a fundamental impact on people’s lives, our way of life, and our fundamental economy. That is what has always attracted me to this industry, the ability to have a large impact and use that as a force for good.

In case I was not working in a large company anymore, perhaps I would work at a university and help develop the leaders of the future. Or perhaps to really follow a passion I would be coach / manager of a professional football team. I can always dream…

Natural gas has been actively used in the power and industrial sectors. Thanks to its advantage as a cleaner fuel and its price-competitiveness, the consumption of natural gas is increasing in the transportation sector. LNG has an advantage over competing fuels as it is price-competitive with diesel and gasoline. At the same time, LNG can decrease the release of pollutants into the atmosphere.

Eastern Program: Gas supplies and LNG market by Maria Kutuzova

Published on 24 September 2017 by Julia Sadieva

According to Gazprom, this is the 10th anniversary of  SEIC Eastern program aimed at creating a unified system for production, processing and transportation of gas in this part of Russia. Investments are equal to 734.4 billion Roubles, now investments are increasing – for 2017 the company is investing 334.4 billion Roubles. Since approval of program in 2007, this Eastern program accumulated resources of more than 5 trillion scm of gas. Developed Sakhalin and Kamchatka fields, at pre-startup phase are Yakutia and Irkutsk area. Common gas supply system is assumed to be connected to the Russian West pipeline system thereby allowing flexibility in gas supplies to both directions. 

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