Sanctions Force Russia’s Novatek to Scale Back Arctic LNG 2 Project

Russia’s LNG exporter Novatek is forced to scale back what would have been the biggest Russian export plant, Arctic LNG 2, as Western sanctions are constraining the company’s access to ice-class LNG tankers, Reuters reported exclusively on Thursday, citing industry sources.

Arctic LNG 2 was initially planned to have three gasification trains with a total capacity of 19.8 million metric tons per year of LNG and 1.6 million tons per year of gas condensate output.

However, sanctions on the project, levied at the end of last year, have made Novatek reconsider the scale of Arctic LNG 2 and shift focus to its planned Murmansk LNG project, which doesn’t need Arctic-class tankers, according to Reuters’ sources.

“All attention now is on Murmansk, the ice-class tankers are not necessary there,” one of the sources said.

Located in the Gydan Peninsula in the Arctic, the Arctic LNG 2 project has been considered key to Russia’s efforts to boost its global LNG market share from 8% to 20% by 2030-2035.

Foreign shareholders suspended participation in the Arctic LNG 2 project after the Biden Administration announced new sanctions in November, effectively withdrawing from the financing of the project and for offtake contracts for the new plant.

In November, the U.S. Department of State designated limited liability company ARCTIC LNG 2, the operator of the Arctic LNG 2 Project, as part of additional sanctions against Russia “to further target individuals and entities associated with Russia’s war effort and other malign activities.”

The U.S. sanctions on Arctic LNG 2 have upended Novatek’s plans for production start-up and export timelines.

Novatek will not be able to start shipments before March as it is still waiting for at least one ice-breaker tanker that’s still in South Korea, Russian daily Kommersant reported in February.

Potential contract cancellations for the construction of ice-class LNG carriers and the sanctions on Arctic LNG 2 could hamper Russia’s plans to boost LNG sales now that its pipeline route to Europe is largely cut off.

By Charles Kennedy for Oilprice.com

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