Building for LNG

For Russia-The NetherlandsThe Port of Rotterdam is the largest port in Europe and covers a territory of more than forty kilometers.

The Port of Rotterdam shows how the Netherlands and Europe can work with Russia in the energy sector.

Like most nations, the Dutch can be suspicious of big industrial plants being built in their neighborhood, and although they are perhaps not as quick to strike and protest as the French, they are not shy about it, either. About 20 years ago, when the Port of Rotterdam began to think about building a huge hub for processing liquefied natural gas (LNG), the locals were not happy. Their fear was that it would explode, or that a transport tanker would spill its cargo, or some other industrial catastrophe would take place. Their argument was predictable: Not in my backyard. So for political and environmental reasons, the idea was put aside.

Then, a generation later, Russia and Ukraine helped resurrect the debate. In March of 2005, a few months after a pro-western government was catapulted to power by Ukraine's Orange Revolution, a series of "energy wars" began between the two countries. Russia announced that Ukraine was not paying enough for its gas, and was siphoning off supplies that were intended for transport to Europe. Serious amounts of fuel were at stake: Russia supplies a quarter of Europe's gas, and 80 percent of it  goes through Ukrainian pipelines. The two countries could not come to an agreement, and on New Year's Day of 2006, Russia cut the gas flows through Ukrainian territory.

Europe has developed a crucial dependence on Russian crude and gas. It's in the interest of Europe that Russia stays a principal, dependable energy partner.

Another dispute began in October of 2007, and led Russia to tighten the spigots again. Then came the worst crisis of all, in January of last year, when eighteen European countries reported that gas supplies from Russia had been shut off or dramatically reduced in the dead of winter. Millions of Europeans shivered in their homes. The tone of the dispute between Ukraine and Russia got harsher.

"From the very beginning, our Ukrainian partners were going to blackmail us," current Russian Prime Minister Vladimir Putin said in January of that year, when he was still the country's president. "And this blackmailing involved a possible blockade of our gas supplies to European consumers."

For the first time in decades, consumers across Europe began to seriously question the security of their energy supplies. Were they more worried about the danger of an environmental accident, or about the risk of relying too heavily on gas transported through Ukraine?

"In that sense, Putin did us a big favor by shutting off the pipes," says Minco van Heezen, spokesman for the Port of Rotterdam, which was to house the LNG terminal. "People realized that it is more important to have energy security."

In August of 2005, the Port of Rotterdam issued a new "start notice" for the construction of the terminal, and the following summer, just half a year after Russia first severed the flow of gas, environmental inspectors approved the project. When it is completed in the second half of next year, its main function will be to receive LNG tankers from suppliers as far away as Nigeria and process it back into natural gas that can then be transported to consumers in the Netherlands and across Western Europe. It will be an additional entry point for fuel supplies that do not depend on transports from Russia through Ukraine.

But breaking its reliance on Russian energy has never been an option for the Netherlands or any other large European nation, says Hans van Lamoen, Royal Dutch Shell's former project manager for Russia, and now the coordinator of the Project Delta Group, which facilitates cooperation between Dutch and Russian companies.

"Over the last several decades, Europe has developed a crucial dependence on the import of Russian crude and gas. It's in the interest of Europe that Russia stays a principal, dependable, reliable energy partner. That doesn't mean Europe won't diversify [energy routes], but it does mean we need to cooperate with Russia."

This cooperation has not always gone smoothly for Dutch companies, with perhaps the sorest point coming in 2007, when the Russian government pressured Shell into selling its stake in the Sakhalin-2 project, a major oil and gas development on Russia's Pacific coast, to Russian natural gas giant Gazprom. But neither did this setback deter Dutch companies: Russia's energy wealth was just too important. In November of 2007, just a few months after Gazprom retook control of Sakhalin-2 from Shell and its Japanese partners, Dutch Prime Minister Jan Peter Balkenende traveled to Russia to meet with then-President Putin in the Kremlin.

For that visit, van Lamoen helped prepare a bold proposal for the future of Dutch-Russian energy relations. Its central point focused on the joint development of natural gas fields in the Yamal peninsula in Russia's far north, home of some of the most abundant gas reserves in the world. Getting that gas out of the permanently frozen soil and waters of the peninsula presents some major technological challenges, and Lamoen argued that Dutch companies such as Royal Dutch Shell have expertise that could be extremely valuable. In an apparent gesture of goodwill toward the Dutch, Putin gave the proposal his support, and Shell has been named as one of the partners in developing Yamal.

Although most of the peninsula's vast energy wealth will be transported through pipelines, its natural gas is also expected to be the main source of Russian LNG, whose shipment in tankers will allow Russia to access markets that pipelines can't reach, such as North America. This is one of Russia's key ambitions: to become the world's principle LNG supplier. Over the next two decades, it wants to start shipping about 100 million tons of the fuel, a tenfold increase from its current capacity, and about 60 percent to 70 percent of that is eventually expected to come from Yamal. Here, too, the Dutch have a crucial role to play, particularly the Port of Rotterdam, which is a member of the steering committee for Russia's Yamal project.

When Yamal starts producing and shipping LNG, the Rotterdam port will have the infrastructure to turn it back into natural gas for sale across Europe.

"The port is ideally situated to manage that energy capacity coming from Yamal," says Hans Smits, the CEO of the port. When Yamal starts producing and shipping LNG, the port will have the infrastructure to turn it back into natural gas for sale across the Netherlands and Europe. The terminal being built for this purpose, the one whose initial construction plan raised such a fuss among environmental activists twenty years ago, is to stand on top of a 2,000-hectare land extension called the Maasvlakte 2, which is being reclaimed from the sea with the use of millions of tons of boulders, stones, gravel and sand shipped in to create a foundation. It is an impressive sight, and like the rest of the port complex, touring it feels like taking a study in the enormous scope of modern industry. One quickly runs out of synonyms for "huge."

A few kilometers from the land extension, the port houses an entire city of greenhouses growing vegetables that are ferried twice daily to the German market. There are silo clusters, about four stories tall, filled entirely with things like rapeseed oil, which can be eaten, refined into soap or burned as fuel. The whole place seems like a monument to the human ability to make efficient use of otherwise useless things — to make fuel from fossils, fertilizer from animal waste, metal from scrap and money from the movement of almost anything. Some of the projects — such as the effort to store and transport carbon dioxide — look more than 50 years into the future, preparing infrastructure for the use of technology that has not even been developed yet.

Only a few years ago, Smits says, this strategic, long-term approach to business was not favored by the port's Russian partners, who tended to go for fast and lucrative deals. But more recently, this has started to change.

"Step by step, the relationship is developing, and what we hope is that Russian companies are really going to invest in hardware here, in port infrastructure, which then means that the relationship is not only formed by the transport of products, but also by strategic investments and partnerships."

Of course, the partnership between the port and Russian energy firms is already vital for both sides. The Port of Rotterdam is the world's largest crude oil terminal, earning most of its money from the storage, processing and shipment of crude, and about half of that now comes from Russia, which has outpaced Saudi Arabia as the port's main crude oil importer.

The Netherlands Energy and Sustainability Plans for 2050
  • To halve CO2 emissions.
  • To have 40 per cent of its electricity from sustainable sources.
  • To invest 7,5 billion euros in energy sufficiency, sustainable energy and CO2 reduction.
  • Achieve 6,000 MW (Mega Watts) of wind power.
  • Develop Smart Grids to enable electric cars.

But in recent years, Russian companies have increasingly started taking the long view of their energy links to Europe, and have tried to move toward selling value-added oil products rather than just raw crude. A major test of this approach, says Smits, will come this January, when a piece of land near the entry to the port will go up for auction. Russia's largest energy companies, Smits says, have expressed interest in buying the land, which would strengthen the bond between the energy suppliers in Russia and their main consumers in Europe.

Somewhat paradoxically, this has been one of Europe's main responses to the energy wars between Russia and Ukraine. While trying to diversify its supply routes away from Russia with projects such as the planned Nabucco gas pipeline, European firms and governments have also sought to tighten their energy bonds with Russia, hoping that greater interdependence will create true stability of supply.

To this end, Europe has largely welcomed Russia's new gas pipeline projects, South Stream and Nord Stream, which are meant to go around Ukraine in delivering gas to European consumers. Gazprom, for its part, has welcomed European executives to lead these projects. The first example was Gerhard Schroeder, the former chancellor of Germany who has joined the Nord Stream gas pipeline project as chairman of the board. In the case of the Dutch, Marcel Kramer, who stepped down last month from his position as CEO of the Netherlands' state gas company Gasunie, will now take the reigns at South Stream. Symbolically, his farewell party from Gasunie was held in Amsterdam's Hermitage Museum. Billed as a small piece of Russia inside the Dutch capital, the museum was inaugurated last year by Russian President Dmitry Medvedev.

"Real cooperation depends in so many ways, yes, on economic feasibility, yes, on technological compatibility, but in Russia many times things don't happen unless there is a very strong personal commitment by individuals," says Van Lamoen of Project Delta Group. "We are extremely pleased that the Netherlands are very focused to also lift relationships, our handshakes, with Russia."

As the Yamal project develops, and Russia's new gas pipelines to Europe come online, the Netherlands will continue positioning itself at the center of the energy interdependence between Russia and Europe.

"The closer these bonds become," says Smits, "the more energy security we can expect."     

Russia - Holland 2010
Russia - Holland 2010
This business bilingual colour publication is devoted to cooperation between Russia and the Netherlands in the fields of business, tourism and culture and is published in partnership with the Dutch embassy.
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