Gazprom Scraps Baltic LNG Contract
Russia's state-owned Gazprom and its private partner Rusgazdobycha have cancelled an engineering, procurement and construction (EPC) contract for processing facilities at a gas complex they are developing on the Baltic Sea, citing the need to cut costs.
The contract was awarded in June last year to Nipigaz, a subsidiary of Russian petrochemicals producer Sibur, but has now been terminated to "optimise the costs" of the project, Gazprom said on March 15.
Gazprom and Rusgazdobycha plan to commission a $13bn gas complex at Ust-Luga in 2023-2024 that will annually process 45bn m3/year of natural gas and produce 19bn m3 of piped gas for transport to Europe and 13mn metric tons of LNG. It will also turn out 3.6mn mt of ethane and over 2.2mn mt of LPG.
"The contractor to carry out these works will be determined in the near future," Gazprom said in a statement. "The decision to replace the contractor will not affect the project schedule."
Nipigaz confirmed the cancellation separately, noting it would remain the project's general designer. The project developers have not arranged financing for the scheme and have not decided how much of its equipment and technology should be localised, the company said, adding that there were "discrepancies" in the risk assessment and in how risks should be shared between contractor and client.
"These factors led to the customer's decision to terminate the work under the EPC contact," Nipigaz said.
Gazprom has been trying to advance an LNG export project on the Baltic Sea for almost two decades. The company signed a preliminary deal to develop a 10mn mt/yr facility with Shell in 2016, but the Anglo-Dutch major left the venture three years later after Gazprom expanded the project's scope to include gas processing facilities and brought on board Rusgazdobycha as a partner.