U.S. sanctions may stall Russian Arctic LNG project
The United States has hit Moscow with extensive new sanctions as part of its response to the conflict in Ukraine. These sanctions target Russia’s energy sector, including the planned Arctic LNG-2 plant.
The Arctic LNG-2 plant is located on the Gydan Peninsula in the Arctic and is designed to have three operational lines, each with a capacity of 6.6 million metric tons of liquefied natural gas (LNG). Novatek, Russia’s largest LNG producer, plans to commence production by the end of this year, with the second and third lines slated to start operations in 2024 and 2026, respectively.
Arctic LNG-2 represents Russia’s third large-scale LNG project, following the Gazprom-led Sakhalin 2 plant in Russia’s Pacific and Yamal LNG, which is controlled by Novatek. The project aligns with Russia’s ambition to secure 20% of the global LNG market by 2035, a significant increase from its current market share of approximately 8%.
Novatek leads the Arctic LNG-2 project with a 60% stake. Other shareholders include French energy major TotalEnergies, China’s CNPC, CNOOC Ltd, and Japan Arctic LNG, a consortium of Mitsui & Co, Ltd. and JOGMEC, each holding a 10% stake. Shareholders will be able to sell LNG in proportion to their shares, with Novatek holding the right to sell 11.9 million tons of LNG per year from the project, while other shareholders can sell 2 million tons each.
The project had initially planned to secure approximately 9.5 billion euros ($10.11 billion) in project financing from both Russian and foreign banks. However, international banks and shareholders halted financing due to sanctions following Russia’s military operation in Ukraine.
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Arctic LNG-2 holds a license for LNG exports from Russia and has secured 4.3 million tons of LNG sales per year, according to public information as of early November. Novatek has signed various agreements for LNG supplies with multiple international partners in recent years, aiming to expand its reach in the LNG market.
These agreements encompass sales to India’s Deepak Fertilisers and Petrochemicals Corporation, China’s ENN Natural Gas, Glencore, Zhejiang Provincial Energy Group, Shenergy Group, Vitol, and Repsol. These deals are crucial for the project’s future and will significantly impact LNG supply dynamics.
