The US is taking direct aim at Russia’s ability to export liquefied natural gas for the first time, which could lead to disruptions in global energy markets that Washington has been keen to avoid.
European countries continued to import Russian LNG even after Moscow’s large-scale invasion of Ukraine last year, which triggered an energy crisis after Moscow cut pipeline supplies to the continent. Until recently, the U.S. has tried to avoid disrupting supply flows so as not to increase pressure on allies struggling with shortages.
But in early November, the U.S. State Department announced sanctions against a new Russian project called Arctic LNG 2 – which, according to officials, lawyers and analysts, effectively prevented countries in Europe and Asia from buying the project’s gas when it begins production next year begins.
Francis Bond, sanctions specialist at law firm Macfarlanes, said that by targeting the project operator, the US wanted to “poison the project in its entirety” and “put pressure on any non-US companies planning to restrict flows of Arctic LNG.” buy.” 2″.
While the US and its allies have in the past imposed sanctions on Russian energy projects in response to the war in Ukraine, preventing them from receiving funding and equipment, this is the first time that LNG supplies have been directly affected.
U.S. officials tried to distinguish between existing supplies and those that will enter the market in the relatively near future, but acknowledged that the aim was to hurt Russia’s ability to profit from selling more fossil fuels.
“We have no strategic interest in reducing global energy supplies, which would drive up global energy prices and increase (Vladimir) Putin’s profits,” the State Department said.
“However, we and our allies and partners have a strong interest in deteriorating Russia’s status as a leading energy supplier over time.”
Arctic LNG 2, located on the Gydan Peninsula in the Arctic and allowing export to both European and Asian markets, would be Russia’s third major LNG project and would underpin the Kremlin’s ambitions to become a leading exporter in the field become. At full production, it would represent a fifth of Russia’s goal of producing 100 million tons of LNG annually by 2030, more than three times the amount the country currently exports.
The project was expected to begin shipping LNG to the international market in the first quarter of 2024. Market analysts said these volumes would ease some of the tightness in the global LNG market caused by increased demand from Europe.
However, Energy Aspects, a consulting firm, said it would remove expected Arctic LNG-2 production from its supply and demand modeling for next year because sanctions would tighten the market.
Arctic LNG 2 is led by Russian private company Novatek, which holds a 60 percent stake. Other shareholders include the French company TotalEnergies, two Chinese state-owned companies and a Japanese joint venture between the trading house Mitsui & Co and the state-backed company Jogmec, each of which holds 10 percent of the shares.
Shaistah Akhtar, partner and sanctions specialist at law firm Mishcon de Reya, said the U.S. restrictions would effectively block the project from Western buyers.
“If you abide by U.S. sanctions, as most people will if they have any business with the U.S., they will not buy the gas from the project,” she said. “Unless you have a license or exemption.”
Arctic LNG 2 investors can purchase gas from the project depending on their stake. For Total and its partners in the joint venture, this would mean around 2 million tonnes at full production from the project. However, due to the sanctions, shareholders have until the end of January next year to wind down their investments.
Western-focused investors “may be able to apply for exemptions with exit dates,” said Kaushal Ramesh, head of LNG analytics at Rystad Energy. This would allow some LNG from the project to flow to Western allied markets, similar to how Japan was authorized to import Russian crude oil from the Sakhalin 2 project above the price cap.
Mitsui said the company will “comply with sanctions laws regarding its LNG offtakes” and is “currently considering specific details.” Jogmec said it would “collect information from stakeholders and conduct a thorough investigation into the progress of the situation.”
Total said: “The consequences of naming. . . “TotalEnergies’ Arctic LNG 2 contractual obligations are currently under review by US authorities.”
France’s Finance Minister Bruno Le Maire said at an event on Thursday that the sanctions currently “do not pose a major threat to European gas supplies.” However, Japanese Industry Minister Yasunori Nishimura said last week that “some degree” of impact on Japan was “inevitable.”
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The U.S. has not directly targeted Russia’s other major LNG projects, Yamal LNG and Sakhalin 2, which transport the fuel to Europe and Asia.
Anne-Sophie Corbeau, a gas specialist at Columbia University’s School of International and Public Affairs, said if Arctic LNG 2 does not begin exports in 2024 as planned, it will “keep markets somewhat tight for longer.”
The sanctions will hurt Russia’s longer-term push to increase LNG supplies and rival market leaders such as the United States and Qatar. “That’s not possible,” said Laurent Ruseckas, a gas expert and managing director at S&P Global. “It’s too difficult to get done [Russia] is excluded from so many parts of the financial system and global economy.”
Additional reporting by Sarah White in Paris