Russia strategy emphasises LNG above alternative fuels

Russia is set to continue prioritising the development of LNG as an alternative fuel over the coming decade, writes Eugene Gerden.

The government’s current long-term policy document, its 2016 national Strategy for Science and Technology (S&T) Development of the Russian Federation, listed “the transition to environmentally friendly and resource-saving energy industry” as one of its seven overarching themes covering the period until 2035.

The strategy included the development of domestic expertise in the construction on LNG-fuelled vessels, and ice-class vessels in particular.

From a fuel perspective, the government has been consulting with some leading domestic shipowners and shippers around potential alternatives for the replacement of HSFO fuels. The alternatives include LNG, LPG, methanol, biofuel, hydrogen and even renewables.

Ship operators in the Baltic Sea and Black Sea basins are expected to focus on LNG and alternative fuels. The Baltic Sea NOx Emission Control Area (NECA) will take effect from January 2021.

Russian Ministry of Energy experts forecast international demand for LNG will accelerate in the next few years, based on newbuilding statistics.

Domestic Russian LNG demand will also increase. As previously reported, Zvezda Shipbuilding Complex has received orders for 15 Arc7 LNG carriers, scheduled for delivery between 2023 and 2025.

The orders form part of the existing state strategy for the development of the Northern Sea Route, which was approved by the Russian government at the end of 2019.

The country plans to take advantage of its more developed LNG supply infrastructure compared with most Western states. In addition, Russia already has well developed port infrastructure, which allows it to conduct LNG bunkering.

Northern Sea Route

The Northern Sea Route remains subject to environmental scrutiny, amid concerns about the impact of emissions and soot at high latitudes. However, the share of LNG-fuelled marine traffic along the Northern Sea Route in the Russian High Arctic in 2019 amounted to 43%.

This is particularly relevant as the Russian government is also beginning to promote active development of hydrocarbon reserves in its Arctic region. This will lead to more active utilisation of the Northern Sea Route and create conditions for the commissioning of a new tanker fleet, that will operate on it. The state is planning to ensure that the majority of these ships will be operated on the basis of environmentally friendly fuels, such as LNG. 

Financial support

As previously discussed, the Russian government is providing support for the implementation of these plans. This includes financial support for shipping companies to purchase LNG-fuelled vessels.

In addition, part of subsidies will be allocated for construction of new generation vessels, based on LNG and other alternative fuels, within the territory of Russia.

The government is also funding the construction of six LNG-fuelled river vessels, as well as the development of 10 LNG bunkering stations throughout the country. The country’s first LNG-fuelled river vessel, Chaika, was delivered by Volga River-based shipyard JSC Zelenodolsk in August 2020. The vessel was designed by JSC Zelenodolsk Design Bureau.

As previously reported, the Russian government is also understood to be considering lifting VAT on imported components or parts for the marine sector, in order to lower the cost of domestic production.

Overall, LNG is expected to account for 10% of bunker fuel sales in Russia by 2030, Svetlana Vorontsova, vice-president of Transport Integration, a leading Russian analysis and consulting company, told The Motorship.

Alternative fuel infrastructure

The government introduced regulations to promote the production of biogas in 2015, but volumes are very small and focused on the domestic retail market.

Methanol remains an important export commodity for Russia, and a number of large expansion projects, such as the Nadhodka methanol plant near Vladivostok, the 10,000 tonne per day Vysotsk project in the Leningrad region, or the Technoleasing 3,000 tpd Skovodorino plant in the Far East, are expected to lift production will only increase in the immediate future.

Nevertheless, demand for methanol from the domestic transport sector or as a fuel for domestic shipping is expected to remain limited, Russian analysts predict.

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