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Russia’s New LNG Project Stumbles as U.S. Sanctions Delay Ship Delivery

Japan’s shipping giant Mitsui OSK Lines is unable to deliver ice-breaker class ships to Russia’s new LNG export project in the Arctic because of the U.S. sanctions levied on the project’s operator at the end of last year, the president of the Japanese firm told Bloomberg in an interview on Tuesday.

The U.S. sanctions on Russia’s latest LNG project, Arctic LNG 2 of the largest Russian LNG exporter, Novatek, have upended the company’s plans for production start-up and export timelines.  

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.” 

This has led some minority shareholders in the project, including France’s TotalEnergies, to declare force majeure on future deliveries.

Novatek holds a 60% stake in Arctic LNG 2. The other shareholders include CNOOC of China and China National Petroleum Corporation (CNPC), TotalEnergies, and Japanese firms Mitsui Group and Jogmec.   

Japan’s Mitsui OSK Lines was supposed to deliver three ice-class breakers to carry LNG from the Arctic plant. The first of the three ice-breaker LNG vessels is expected to finish construction later this year.

“Our contractual obligation is that if we cannot provide the service to Arctic 2, we have to sell our vessel to Arctic 2,” Mitsui OSK Lines president Takeshi Hashimoto told Bloomberg.

But “there is a sanction that says we should not do that deal with Arctic. So it’s a bit complicated,” the Japanese executive added.

The company is working with the U.S. and Japanese governments to find a solution to the ship delivery issue, he added.

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.

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By Tsvetana Paraskova for Oilprice.com

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