US sanctions continue to delay the initial shipment of gas from Russian gas producer Novatek’s Arctic LNG 2 project. The lack of ice-capable carriers for liquefied natural gas has delayed the first cargo until at least March. Meanwhile, Novatek has begun looking for new buyers of its sanctioned gas in China.
Despite beginning production of liquefied natural gas (LNG) at the Arctic LNG plant more than 6 weeks ago, Novatek has thus far been unable to ship any product to customers. Initially the company and Russian officials suggested loading of the first cargo would occur in January or February.
However, a lack of required ice-capable gas carriers has further pushed back the first delivery into March.
The company’s new project faces a host of challenges arising from US sanctions announced in November 2023. The blocking measures affect the sale, transport, and transshipment of LNG from the project.
The project’s international partners, including France’s TotalEnergies, China’s state-owned oil major CNOOC and National Petroleum Corp (CNPC), and Japan’s consortium JOGMEC have de facto exited the project leaving Novatek to find new buyers for the LNG.
TotalEnergies CEO confirmed this week that his company will not be receiving any product from the project stating supplying more Russian fuel to Europe is “politically difficult.”
If we cannot provide service to Arctic LNG 2, we have to sell our vessel to Arctic LNG 2.
Novatek has been looking to secure new buyers. For this purpose the company has established a new sales office in China, Reuters reported earlier in the week. “[The company is] building a new China-based team to explore marketing the fuel,” the article states.
A transportation bottleneck
Even if Novatek can find new buyers for its sanctioned gas, it remains unclear how it will be able to transport the LNG, at least in the short-term.
Arctic LNG 2’s location along the ice-covered waters of the Northern Sea Route (NSR) requires a fleet of specialized ice-class LNG tankers. While several vessels have already completed sea trials and others are nearing completion at shipyards in South Korea and Russia, none have entered into service.
Japanese shipping company Mitsui O.S.K. Lines (MOL), scheduled to receive three Arc7 LNG carriers, said that due to sanctions it will not be able to operate the ships under a time charter with the project. And efforts to sell them to Novatek itself or another shipping operator are equally hampered by the US measures.
“Our contractual obligation is that if we cannot provide the service to Arctic LNG 2, we have to sell our vessel to Arctic LNG 2,” MOL President Takeshi Hashimoto explained in an interview with Bloomberg this week. However, “there is a sanction that says we should not do that deal with Arctic LNG 2. So it’s a bit complicated.”
Previously, analysts suggested that Novatek could use LNG carriers from its other project, Yamal LNG, to deliver Arctic LNG 2 cargo to transshipment points in Murmansk and Kamchatka. However, this appears to not be feasible as the fifteen Arc7 carriers are contractually bound to their time charters servicing the Yamal project.
Novatek is likely also cautious about blurring the operational lines between its Yamal LNG and Arctic LNG 2 projects, given the fact that the former is highly profitable and remains thus-far unsanctioned.
As a result of the uncertainty surrounding the sale and transport of its LNG the company has reportedly put on hold the third stage of the project. While the first modules for the third train are awaiting transport at a Chinese shipyard, Novatek will likely pivot to its next project Murmansk LNG.
Located outside of ice-covered waters near Murmansk it will not require specialized ice-class LNG tankers, but instead could rely on conventional vessels.