A new LNG terminal is being built in the Ukraine on the coast of the Black Sea to re-gasify the liquefied natural gas (LNG) imported from various sources. The Ukrainian Government considers the terminal as one of the top five projects of national importance and part of the government’s National Energy Strategy.
The LNG terminal will have a total capacity of 10 billion cubic metres (bcm) of gas a year and is estimated to cost €969m ($1.3bn). The facility is expected to begin production by 2018.
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In addition to providing the Ukraine with cheaper LNG than it is currently getting, the terminal will play a key role in the Asia-Europe supply route.
The State Agency for Investment and National Projects of Ukraine is working on attracting investments to the project.
Background to the nationally important project
The LNG terminal will reduce Ukraine’s dependence on Russian LNG supplies. Ukraine imports 65% of its domestic gas requirement through Russia.
The new terminal will help the country diversify and access LNG from various sources, thus reducing imports from its eastern neighbour.
Ukraine has been importing Russian gas at $297 per 1,000 cubic metres. It wanted Russia to reduce the price to $240. Russia, however, did not consider the request, prompting Ukraine to draw a plan for the terminal. The terminal is expected to bring down the LNG price to $200 per 1,000 cubic metres, saving the country $3bn a year.
Location of the strategic LNG terminal
Five locations were considered for the project, including two at Yuzhnyi port in the Odessa province in south-west Ukraine and two in the Ochakiv district of the Mykolayivska province in south Ukraine. The Yuzhnyi port has an oil terminal and is one of the top three ports in the country. Ochakiv is located on a peninsula in the Black Sea. The fifth terminal considered was an offshore location near Odessa.
The open coast at the Great Adzhalykskyi estuary in Yuzhnyi sea port, Odessa, was selected as the most viable location for the project.
Details of the Ukraine’s first LNG terminal
The LNG terminal will be constructed in two phases. Phase one will include construction of a floating set for storage and regasification (FSRG) unit with a capacity to process 5bcm of natural gas a year. It is expected to become operational in 2016.
Phase two will have the same capacity as that of phase one. It will include construction of a ground LNG terminal and will be operational by 2018 taking the total capacity of the terminal to 10bcm a year.
Three LNG tanks with a capacity of 180,000m3 each will be built on site.
Construction details of the LNG terminal at the Yuzhnyi Port
The engineering works for the FSRU unit started in April 2013. Construction of the LNG terminal is scheduled to start by mid-2014.
Construction of an underwater pipeline connecting the terminal to the Gas Transit System of Ukraine was started in November 2012.
Contractors involved in the Ukranian construction project
Spanish engineering company Socoin was awarded the feasibility study contract in September 2011. Under the $385,000 (€285,000) contract, Socoin performed a feasibility study to determine the location of the facility (out of the five given options), cost estimates for the project and the investment payback period. The study was approved in August 2012.
ILF Consulting Engineers Polska signed a contract in April 2013 to perform feasibility studies for the phase 1.
The Ukrainian state enterprise LNG Terminal National Project and Excelerate Energy signed an agreement in April 2013 for engineering works on the FSRU unit.
Ownership and investments of the LNG terminal
The Ukrainian Government plans to hold about 25% stake in the project and let private players take a majority stake. The private investors will develop and operate the terminal.
Korea Gas Corporation (KOGAS), Daewoo International, Hyundai Engineering and Construction, Bouygues Travaux Publics, Sofregaz, Ramboll, Boskalis, China Petroleum Technology and Development Corporation, Baker & McKenzie, DTP Terrassment, Mercados, Moss Maritime, Andrade Gutierrez, Jan De Nul, Five Cryogenie, Emirates NBD and Technex are the project partners and investors.
Negotiations are underway with Qatarhaz, Van Oord and Sonatrak for the supply of the required resources.
The State Agency for Investment and National Projects held road shows across Europe, the US, Asia and the Middle East to attract investors to the terminal as well as a few other projects.
Ukraine consumed about 57bcm of natural gas in 2010. The consumption is projected to grow to 70 to 75bcm in the next three to five years.
The country produces just 20mcm of natural gas a year. Though the domestic gas production figures are estimated to increase with the development of shale gas reserves and discovery of new natural gas deposits, these are expected to fructify only after ten years. This makes it necessary for Ukraine to continue to import gas.
The LNG terminal will help the country diversify its imports by tapping sources in Algeria, Egypt, Nigeria, Oman, Qatar, Trinidad and Tobago and the upcoming fields in Western Australian and Azerbaijani fields.
Ukraine and Azerbaijan signed a MoU in 2011 to study the feasibility of liquefied gas supply from Azerbaijani gas fields to the Black Sea coast of Ukraine. The terminal forms an important component of this agreement.
Once the domestic gas production gets fully operational, the terminal will be used for exporting gas to Europe.
