For the first time, the US is directly targeting Russia’s ability to export liquefied natural gas, which could lead to disruptions in global energy markets that Washington has so far sought to avoid.
European countries continued to import Russian liquefied natural gas even after Moscow’s full-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 sought to avoid cutting off 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 development known as Arctic LNG 2 — effectively blocking countries in Europe and Asia from buying gas from the project when it begins production, according to officials, lawyers and analysts. next year.
Francis Bond, a sanctions specialist at law firm Macfarlanes, said that by targeting the project operator, the US was seeking to “toxicize the project as a whole” and would put “pressure on any non-US companies planning to buy Arctic streams LNG 2”.
While the US and its allies have in the past imposed sanctions on Russian energy projects in response to the war in Ukraine, trying to deprive them of funding and equipment, this is the first time LNG supplies have been directly affected.
U.S. officials tried to draw a distinction between existing supplies and those that will be brought to market in the relatively near future, but acknowledged that the goal is to hurt Russia’s ability to profit from selling more fossil fuels.
“We have no strategic interest in reducing global energy supply, which would raise energy prices around the world and undercut (Vladimir) Putin’s profits,” the State Department said.
“However, we, as well as our allies and partners, share a strong interest in the deterioration of Russia’s status as a leading energy supplier over time.”
Arctic LNG 2, located on the Gidan Peninsula in the Arctic, allowing it to export to both European and Asian markets, will be Russia’s third large-scale LNG project, boosting the Kremlin’s ambition to become a leading exporter in this area. At full production, it would represent a fifth of Russia’s goal of producing 100 million tonnes of liquefied natural gas per year by 2030, more than three times the volume the country exports now.
The project was expected to begin supplying LNG to the international market in the first quarter of 2024. Market analysts said these volumes would ease some of the pressure on the global LNG market caused by increased demand in Europe.
However, consultancy Energy Aspects said it was removing expected Arctic LNG 2 output from its supply and demand modeling for next year because the sanctions would shrink the market.
Arctic LNG 2 is managed by the Russian private company Novatek, which holds 60% of the shares. Other shareholders include France’s TotalEnergies, two Chinese state-owned companies and a Japanese joint venture between trading house Mitsui & Co and government-backed Jogmec, each holding a 10% stake.
Shaistah Akhtar, partner and sanctions specialist at law firm Mishcon de Reya, said the US restrictions would effectively block the project for Western buyers.
“If you’re going to comply with US sanctions, as most people will, if they have any dealings with the US, they’re not going to buy gas coming from the project,” she said. “Unless you have some kind of license or exemption.”
Investors in Arctic LNG 2 can take gas from the project depending on their stake. For Total and its joint venture partners, this means around 2 million tonnes when the project starts producing at full capacity. But under the sanctions, shareholders must wind down their investments by the end of January next year.
Western-oriented investors “could potentially apply for exemptions with phase-out dates,” said Kaushal Ramesh, head of LNG analytics at Rystad Energy. That could allow some LNG to flow from the project to Western markets, similar to how Japan was allowed to import Russian crude oil from the Sakhalin 2 project above cap prices.
Mitsui said the company would “comply with the sanctions law with respect to its LNG supplies” and that it was “currently looking into specific details.” Jogmec said it was “collecting information from interested parties and conducting a thorough investigation into the development of the situation.”
Total said: “The implications of the designation… by the US authorities of TotalEnergies’ contractual commitments to Arctic LNG 2 are currently being assessed.”
French Finance Minister Bruno Le Maire, speaking at an event on Thursday, said that for now the sanctions “do not pose a serious risk to European gas supplies”. However, Japanese Industry Minister Yasunori Nishimura said last week that “some degree” of impact on Japan was “inevitable”.
The US has not directly targeted Russia’s other major liquefied natural gas projects, Yamal LNG and Sakhalin 2, which supply the fuel to Europe and Asia.
Anne-Sophie Corbo, a gas specialist at Columbia University’s School of International and Public Affairs, said that if Arctic LNG 2 does not start exporting as planned in 2024, it “will keep the markets a little bit tighter for longer time”.
The sanctions will hit Russia’s long-term ambition to increase supplies of liquefied natural gas and compete with market leaders such as the United States and Qatar. “It’s not possible,” said Laurent Rousekas, gas expert and executive director at S&P Global. “It is too difficult to accomplish when [Русия] is excluded from so many parts of the financial system and the world economy.”
2023-11-12 11:54:00
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