Ukraine Pursues $1.5 Billion LNG Port Plan To Diversify Supplies

KIEV, Ukraine -- Ukraine is pursuing a plan to build a $1.5 billion liquefied natural gas terminal on the Black Sea after Russia refused to cut prices for shipments of the fuel.

Ukraine is studying the feasibility of constructing a new terminal for liquefied natural gas on the Black Sea shore.

“This is a matter of national security to us now as Russia has refused, without grounds, to lower the price of its gas,” Vladyslav Kaskiv, head of Ukraine’s State Agency for Investment and National Projects, said today in an interview in New York.

“We have absolutely no problem attracting investment. The world’s biggest energy companies are interested.”

Talks between the Ukrainian and Russian prime ministers this week ended without agreement on a requested reduction in the price of gas shipped from Russia.

Ukraine, the largest consumer of Russian gas, pays $297 per 1,000 cubic meters, and said May 24 it wants to cut the price to $240.

Kaskiv has discussed Ukraine’s plans to build an LNG terminal with companies including Exxon Mobil Corp., Halliburton Co. and Chevron Corp., he said.

The Ukrainian government will accept bids to conduct a feasibility study as early as two weeks’ time and invite companies to submit construction proposals as soon as October, he said.

“By our very rough estimate, we expect the terminal will cost about $1.5 billion,” Kaskiv said. “It’s a question of whether the state should invest the money. It is a major consumer of the product, so there is room for discussion.”

LNG is natural gas that’s cooled to a liquid to allow its transportation by tanker. Ukraine depends on Russian imports for most of its energy needs, including gas, oil and nuclear fuel.

Quarter Stake

LNG arriving at the coastal terminal would be converted back into a gas before distribution to customers by pipeline.

Gas produced at the facility will cost less than $200 per 1,000 cubic meters, Kaskiv said. Ukraine is seeking to own about a quarter of the venture and will consider allowing a single investor or group of investors to control the rest, he said.

Ukraine expects the terminal to produce as much as 2 billion cubic meters of gas in the first year of operation in 2013, Kaskiv said. Capacity would grow to 5 billion cubic meters by 2016 and 10 billion cubic meters as soon as 2020, he said.

The government is studying four locations on the Black Sea coast, including ports in Odessa and Mykolaiv, Kaskiv said. It expects to buy LNG from countries such as Azerbaijan, which has a preliminary agreement to supply 2 billion cubic meters to 10 billion cubic meters a year, and will use most of the LNG for its domestic needs, Kaskiv said.

Ukraine is the main transit route for Russian fuel to European Union countries. Russian gas shipments to Europe were halted for two weeks in 2009 because of a price dispute between Russia and Ukraine.

Source: Bloomberg