Russia is in talks with Chinese partners over their potential participation in the LNG and chemical complex in Ust-Luga, the country’s deputy energy minister Alexander Novak disclosed following a visit of Chinese President Xi Jinping to Moscow in March.

While Novak did not detail what form such assistance could take, he noted that Chinese investors owned stakes in key LNG projects in the Russian Federation, including Novatek’s (Moscow; www.novatek.ru) Yamal LNG and Arctic LNG-2.

As a part of the ethane-containing gas processing complex in Ust-Luga on the Russian Baltic Sea coast, gas monopoly Gazprom (Moscow; www.gazprom.ru) planned to build the country’s largest gas processing plant with an annual capacity of 45 bn m³ to produce 13 mn t/y of LNG, up to 4 mn t/y of ethane, and 2.2 mn t/y of liquefied hydrocarbon gases. The Ust-Luga mining and chemical complex was expected to produce 3 mn t/y of polyethylene using ethane sourced from the gas processing complex.

Originally, the launch of the first stage of the complex was scheduled for 2024, with the second phase set to be completed in 2025. Construction is now expected to be delayed due to key contractors exiting the project, the Bank of Russia said in a December 2022 report. The new schedule has not yet been made public.

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A Gazprom joint venture is in the process of suing engineering giant Linde Engineering (Pullach, Germany; www.linde.com) to recover an advance of around USD 1 bn (EUR 917 mn) that had been paid under a 2021 contract to design and construct the Ust-Luga LNG plant.

In September 2022, Linde pulled out from the project and rejected requests to repay the advance on the grounds that doing so could violate EU sanctions.

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In January 2023, a St. Petersburg court issued a statement on the case claiming that “contractors from unfriendly countries are sabotaging the completion of the construction of the gas processing plant”.

Chinese companies might be interested in investing in the Ust-Luga project under certain conditions, but providing technology and assistance in the form of engineering services seems a more likely scenario, Sergei Kondratyev, a senior researcher at the Russian Institute of Energy and Finance, told local newspaper Kommersant.

Kondratyev noted that due to sanction risks, the return on investments on Russian LNG and gas chemistry projects looks uncertain, adding that Chinese investors are likely to be more interested in similar projects closer to Asia-Pacific, in the Far East and Arctic.

He estimates that Baltic gas projects could experience difficulties due to the high cost of transportation to customers since EU sanctions against the Russian energy sector do not look to be lifted any time soon.