Russia’s LNG Export Plans Suffer Setbacks Due to Sanctions

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

There aren’t enough ice-class LNG tankers built to carry LNG from the Arctic LNG 2 project via and Northern Sea Route across the Arctic Ocean to the east, while sanctions on the same project could also impede Russia’s efforts to sell more LNG abroad, sources in the industry and analysts have told Reuters.

South Korea’s Samsung Heavy Industries flagged earlier this year no progress on 10 vessels out of an order for 15 ice-breakers, due to the sanctions on Russia.

In addition, the Arctic LNG 2 project itself is threatened with delays following stricter sanctions imposed by the United States.

The U.S. imposed last month fresh sanctions on Russia’s Arctic LNG 2 project, which is close to first production.

The Arctic LNG 2 project is being developed by Russia’s largest independent natural gas producer, Novatek, and was on track to begin first production later this year.  

In September, the U.S. levied some sanctions on the Arctic LNG 2 project, designating Russian services companies connected with its development.

Two months later, 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.”

Earlier this week, unnamed industry sources told Reuters that Novatek had issued force majeure on future Arctic LNG 2 supplies for some clients following the sanctions imposed by Washington in November.

The $25-billion Arctic LNG-2 project is Russia’s second major LNG project, and the new sanctions prohibit all related transactions without a special license from OFAC until 31 January 2024.

By Charles Kennedy for Oilprice.com

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