LNG equipment localization program of Russia deprived of budget money

The Russian government has essentially forgone the ambitious program of manufacturing advanced equipment for its liquefied natural gas (LNG) production projects domestically.

The updated version of the project titled “A Breakthrough to LNG Markets” attests to a more than a hundred-fold drop in financing: from 35 billion to 300 million rubles, Kommersant reports. Such drastic changes to the profile of the ambitious project drew the attention of Kommersant, a mainstream business publication.

As late as in 2021, the aggregate program cost was assessed at 127 billion rubles, of which public funds accounted for 35 billion. Major natural gas producers – primarily Novatek and Gazprom – were expected to supply the rest. The paper suggested completing 40% of the localization by 2024, 60% by 2028, and 80% by 2030. In the latest version, the manufacturing has already been localized by 40% in 2022, out of a sudden, while the overall program cost dropped to 89.32 billion rubles.

As the Russian Ministry of Industry and Trade confirmed to the publication, the program has indeed undergone some changes, but “the Breakthrough to LNG Markets project is on track”. The “Breakthrough” suggested developing 18 types of equipment for medium- and large-scale LNG plants by 2030, obtaining the prototypes through research and development.

The equipment in question included offloading pumps, cryogenic valves, membrane elements for the primary barriers of LNG vessels, liquid expanders, and more. The program implementation was entrusted to such enterprises as OKBM Afrikantov (a subsidiary of Rosatom), Konar, the Logicroof Plant, and Kazancomperssormash.

However, experts questioned the possibility of a breakthrough in the LNG industry even with the previous program version because it focused more on profits than developing competitive domestic prototypes.

“The governmental decree on R&D subsidies focuses more on driving profits, while the current situation calls for a bigger emphasis on the development of innovative technologies and products,” remarks Andrey Nikipelov, CEO of Atomenergomash (another subsidiary of Rosatom).

He also pointed out that the industry is suffering from a shortage of “long money” – low-interest investment loans at 2–3% a year – whereas the current rates hamper the industry's development.

In June, the CEO of Novatek Leonid Mikhelson called on the government to support the industry. He insisted that upping Russia’s LNG export would require major investments across the industry: according to Mikhelson, the R&D spending alone would amount to 24 billion rubles. He underlined that the industry would not be able to procure the necessary funds independently and required state support.