US and EU have all the means to derail Russia’s Arctic LNG expansion plans – Euractiv

Feb 7, 2024

Russia plans to nearly triple its LNG export capacity by 2030, with four new terminals in the Arctic due to bring more revenues for Moscow’s war on Ukraine. Yet, Ukraine’s allies have a strong leverage on Russian LNG exports, writes Andrii Zhupanyn.

Andrii Zhupanyn is the chairman of the subcommittee on natural gas policy of Ukraine’s Verkhovna Rada, its unicameral parliament.

Since February 24, 2022, Russia has amassed more than $600 billion in profits from fossil fuel exports and is rushing to develop new Siberian and Arctic fields.

If, however, international sanctions on Russia’s fossil fuel industry are maintained and rigorously enforced, the International Energy Agency projects that the Kremlin’s profits from oil and gas could plummet by 40 to 50% by 2030.

Regrettably, while Russian LNG exports were not covered by international sanctions and restrictive measures, in 2022 and 2023 the aggressor state reaped a surge in associated revenues, supplying record volumes to world markets and aiming for further rapid expansion.

Russia plans to nearly triple its LNG export capacity by 2030, from the current 35 million tons per year to 100 million tons per year and capture at least 20% of global LNG market. To achieve that, Russia aims to build four new LNG terminals in the Arctic, in addition to the existing Yamal LNG.

Status of Arctic LNG 2 project: disrupted, but not stopped completely

Today, the ongoing construction of the Arctic LNG 2 terminal is the key element in Russia’s plan to boost its global share of the global liquefied natural gas market.

Before Russia’s full-scale invasion of Ukraine, Arctic LNG 2 was planned to reach a full capacity of almost 20 million tons of LNG per year by 2026. So far, Russia has been quite successful, as the first of three liquefaction trains started operation on 21 December 2023.

However, at the exact time as the production of LNG started, the joint venture project received a heavy blow from US sanctions, as its foreign participants announced force majeure and denied offtake of LNG from it under the previously anticipated long-term contracts.

The US Department of State in November 2023 imposed sanctions on ARCTIC LNG 2 LLC, the operator of the Arctic LNG 2 project with majority stakes owned by Novatek (60%). France’s TotalEnergies, Japan’s Mitsui and Chinese corporations CNPC and CNOOC, who each hold a 10% share of Arctic LNG 2 joint venture, have all decided to comply with US sanctions.

In these circumstances, Novatek is likely to try marketing LNG from the sanctioned project at spot markets.

The biggest problem Novatek faces is the logistical bottleneck, as it has only three new ice-class LNG tankers, which are owned directly by the company and carry the Russian flag. As EU sanctions prohibit access to ports in member states for such vessels, they will not be able to make direct deliveries to Europe.

Yet, Novatek also has access to an additional fleet of 15 Arc-7 tankers that provide shipment services for its existing Yamal LNG terminal. Out of 15 operational ice-class LNG tankers currently enabling Russian LNG exports, 11 are insured in the United Kingdom and three in Norway.

EU-registered companies operate as managers of nine of these vessels, while UK-registered ship managers cover another five vessels.

Therefore, Ukraine’s allies have a strong leverage on Russian LNG exports.

Russia’s attempts to de-bottleneck LNG exports

Russia aims to achieve increasing self-reliance in the construction of ice-capable LNG carriers. For Arctic LNG 2 Novatek planned to build 15 new Arc7 ice-class tankers. The above-mentioned first three tankers for Arctic LNG 2 were constructed at Russia’s Zvezda shipyard with assistance from Samsung Heavy Industries.

To date, Samsung had halted constructing LNG carriers for Arctic LNG 2 due to US sanctions. Samsung initially had contracts for 15 carriers but stopped production of components and equipment for the vessels.

The contracts involved building the carriers at Zvezda shipyard in Russia’s Primorsky Krai. While five carrier hulls were shipped under South Korean government approval, construction was halted on the other 10 due to sanctions.

South Korea’s tanker development role was crucial for Novatek’s expansion plans, as Korean icebreakers are virtually irreplaceable. Losing Korean participation poses major challenges for the Arctic LNG 2 project and without a tanker fleet, it will not function.

So far, exports of Russian LNG to global markets were only expanding, while the opposite is required to happen.

Ukraine’s allies must cut this important source of the Kremlin’s budgetary income that funds the war of aggression, also to avoid the severe climate impacts of uncontrolled and unaccounted methane emissions in the Russian LNG supply chain.

Now Russia aims to establish year-round exports of liquified natural gas from the Arctic to Asia through the North Sea Route in 2024, which threatens to put additional pressure on the most environmentally sensitive region of the planet.

If Russia succeeds in further expanding its LNG exports and building infrastructure along the North Sea Route, this will provide Moscow with additional resources to sustain its war against Ukraine and also lead to dire climate consequences.

The time for bold action is now

Further sanctions against Russian LNG exports are necessary to deprive Russia of its future gas export revenues and undermine its military efforts in Ukraine, but they will also represent a crucial contribution to mitigating climate change.

Over the past two years, the US and EU have provided steadfast support for Ukraine and taken significant measures to reduce the Kremlin’s financial income from the export of fossil fuels.

Now it is time for Ukraine’s partners to take the next bold steps to deprive Russia of essential income and degrade its ability to use gas supply as a geopolitical weapon, namely:

  • take additional measures to fully stop the Arctic LNG-2 project, including secondary sanctions against owners of vessels engaged in transporting components for the construction of second and third liquefaction trains;
  • limit EU gas imports from Yamal LNG and completely phase out Russian LNG in Europe by 2025;
  • introduce sanctions against the provision of transport, insurance and any other financial services for the export of Russian LNG;
  • introduce targeted sanctions against all ice-class LNG tankers, that are used for exports of Russian LNG.

In this context, the Committee on Energy, Housing and Utilities Services of Ukraine, with my contribution, has addressed the US Government, European Union, Norway and the UK with the urge to introduce comprehensive sanctions against the Russian LNG sector and block Russia’s plans to expand LNG production and exports.

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