The economic weapons of the West have missed their target. Last month, Russia exported near-record amounts of crude oil at decent prices. However, there is one exception. Russia had hoped the ultra-modern export facility, Arctic LNG 2, would open up a major new market after shutting down its main gas pipeline to Europe in 2022. But last month, the factory suspended operations until next summer due to a lack of ships and buyers. Sanctions are nipping it in the bud.
In 2021, piped fuel to Europe accounted for 69% of Russia’s total gas exports of 200 billion cubic meters (bcm). With pipelines difficult to redirect, the future of Russia’s gas industry now depends on being able to produce and transport more liquid gas (LNG) to alternative buyers.
Arctic LNG 2 is essential to that mission. The project is large in itself, consisting of three “trains” with an expected liquefaction of 27 bcm per year. It is also a pioneer in Arctic weatherization technologies, such as floating concrete platforms the size of eight soccer fields, and installation technologies that can be deployed on the ground. (Its parts are pre-assembled 2,000km away before being clicked together Lego-style in Siberia.) So this could become a prototype for even more potential Russian LNG terminals, Tatiana said. says Mr. Mitrova, a former member of the Russian Academy of Sciences, said Russia aims to produce 100 million tons of LNG per year (equivalent to 142 bcm when regasified) by 2030.
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To prevent this, Western countries are trying to deprive Arctic LNG 2 of key technology, tankers and customers. In May 2022, the EU banned the supply of Western technology to the plant (the US blacklisted the project 18 months later). But the Russian company running the project, Novatek, had already received much of the Western equipment needed to build the first two trains. It was missing 16 American-made turbines to power its trains, but was able to redesign the platform to use Chinese-made turbines instead. One of the Chinese companies, Wysong Energy, reportedly used various obfuscation techniques, including changing the names and repainting of the ships carrying the cargo, to conceal supplies to Novatek. It is reported that it continues. Train 1 began production in January. Train 2 is scheduled to enter service in early 2025, just a few months later than planned.
Novatec had even more trouble procuring ships. Arctic LNG 2 relies on a tanker called Arc7 that can cut through the ice so it can be exported outside of summer. Before the Ukraine war, Novatek had ordered six such ships from South Korean shipyard Hanwha Ocean and 15 from Russia’s Zvezda. Three of the former have already been built, but sanctions prevent them from paying for the ships. In February, Hanwha tried to sell the tankers to an affiliate of Dubai-based Novatek, but the deal was halted after the U.S. learned. Three other foreign-made Arc7 vessels owned by Japanese companies also cannot be chartered for Arctic LNG2 due to sanctions. Meanwhile, only two of the Russian-made units are nearing completion, as Western suppliers stopped production of key components after sanctions were imposed. Delivery dates have been repeatedly postponed.
In the absence of Arc7, Novatek has amassed a “dark fleet” of older conventional tankers that can carry cargo, at least through the summer. Anna Subasic of the data firm Kpler estimates that such ships are owned through some strange Indian company. The eight vessels are currently loading LNG on Arctic LNG 2 from August to October.
These shadow tankers hide their tracks by tampering with their transponders, but their true journeys can be tracked through satellite imagery. The US has systematically blacklisted ships and their operators that have approached Arctic LNG2 (the most recent sanctions took place in late October). This is scaring off potential buyers and is Novatek’s third and biggest headache. Until now, half of the tankers carrying Arctic LNG have stored their cargo along the Russian coast. The remaining four vessels are floating around Asian waters, waiting for buyers. India says it doesn’t want to be a part of it. Chinese importers have also been reluctant so far, despite being offered around 40% discounts. That may or may not change. One gas trader noted that all Chinese LNG companies also buy gas from the United States or rely on dollar funding, making them vulnerable to sanctions.
Sanctions on Arctic LNG are harsher than those targeting Russian oil exports, but they have not stopped non-Western buyers from purchasing LNG. It is also easy to enforce. The fleet of LNG tankers around the world is much smaller than the tankers carrying oil and can only berth in a few specialized ports. That makes it easier to detect violations, says Anne-Sophie Corbeau of Columbia University. And it costs less to discipline them. From 2025 onwards, large amounts of new LNG are expected to come from outside Russia, especially from the United States, which should keep global prices down. Sanctions on Arctic LNG are working primarily because the United States wants them to be effective. How long that lasts depends on the geopolitical whims of the next president.
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