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Reuters: Russia’s gas ambitions hit snag as sanctions force Arctic LNG 2 to suspend operations

The main problem is a shortage of specialized LNG tankers: only three have been built, and South Korea withdrew from building more under US sanctions
Russia’s Arctic LNG-2 facilities. Photo: flenco.com
Reuters: Russia’s gas ambitions hit snag as sanctions force Arctic LNG 2 to suspend operations

Russia’s largest liquefied natural gas (LNG) producer Novatek has suspended production at its Arctic LNG 2 project due to Western sanctions and a shortage of specialized gas tankers, Reuters reported on Tuesday, citing two sources familiar with the matter.

“Train one will remain shut until at least the end of June,” one of the sources told Reuters, adding that construction activities for the project were still ongoing.

The decision to halt LNG production is a setback to Russia’s goal of capturing a fifth of the global LNG market by 2030-2035. The country currently ranks as the world’s fourth-largest LNG producer, with annual exports of 32.6 million metric tons.

According to the sources, the primary issue lies in the lack of specialist tankers capable of transporting LNG, which must be cooled to minus 163 degrees Celsius, and navigating through thick sea ice.

Only three suitable gas tankers have been built for Arctic LNG 2 so far: the Alexei Kosygin, Pyotr Stolypin, and Sergei Witte vessels.

arctic lng2 novatek sanctions usa
Arctic LNG 2. Photo: Novatek.ru

Russian Deputy Prime Minister Alexander Novak addressed the situation, stating, “The company is dealing with the issues, corresponding talks are under way. Their main problem is with the tankers.”

Ronald Smith, a senior oil and gas analyst at Moscow-based BCS brokerage, highlighted the uncertainty surrounding the project’s ability to secure the necessary tankers. “Novatek is very well managed and may find a work-around to get completed ships transferred to the project somehow in the near future, or those ships may remain stuck in shipyards for an extended period of time,” he said.

Arctic LNG 2 faces problems after foreign investors withdraw, facing sanctions pressure

The Arctic LNG 2 project, spearheaded by Russia’s largest LNG producer Novatek, has been a key component of Russia’s strategy to increase its presence in the global LNG market. The project aims to produce 19.8 million tons of LNG per year, contributing to Russia’s goal of exporting 100 million tons annually by 2030.

However, the imposition of Western sanctions on Russia following its invasion of Ukraine in February 2022 has significantly impacted the project’s progress and viability.

Foreign shareholders in the Arctic LNG 2 project, including France’s TotalEnergies, China’s CNPC and CNOOC, and a consortium of Japan’s Mitsui and JOGMEC, have been forced to reevaluate their involvement due to the sanctions.

In September 2023, the United States expanded its sanctions to target entities linked to the project, and in November 2023, direct sanctions were imposed on Arctic LNG 2 LLC, the project’s operator. As a result, foreign partners have declared force majeure and suspended their participation, leaving Novatek to shoulder the financial burden independently.

The sanctions have also led to the halting of crucial equipment production, such as the construction of ice-class LNG carriers by South Korea’s Samsung Heavy Industries, further complicating the project’s progress.

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