Russian LNG Expansion Plan at Risk Due as US Sanctions Delay Exports

(Bloomberg) -- Russia’s plan to rapidly expand liquefied natural gas exports is stalling due to US sanctions that are delaying shipments from a major new project.

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The Arctic LNG 2 plant began production in December, but has so far not managed to export any gas due to the US restrictions. It had to sharply reduce gas output in February, according to data seen by Bloomberg. The Vedomosti newspaper, which was the first to report the drop in production, said Arctic LNG 2 was unable to export fuel and didn’t have enough space to store it.

The facility’s LNG production was totally halted a few weeks ago, according to people with knowledge of the matter who asked not to be named because the information is private.

Novatek PJSC, the major shareholder of the plant located above the Arctic Circle, had aimed to begin deliveries by the end of March. It didn’t immediately respond to a request for comment.

The Russian company is in talks to sell its first shipment to buyers in China, but the timing is still unclear amid fear of US retaliation, according to the people.

Novatek’s travails show how tough it will be for Russia to achieve its target of roughly tripling LNG exports by 2030. The country — the world’s biggest gas exporter before the invasion of Ukraine caused Europe to shun its piped supplies — exported around 32 million tons of the super-chilled fuel last year, a fraction of the total global trade of 412 million tons, according to ship-tracking data.

The US imposed targeted restrictions on Novatek in November that all but forced out other investors in Arctic LNG 2, including TotalEnergies SE and Mitsui & Co., which have both declared force majeure.

The sanctions have also upended plans for the plant to receive specialized icebreaker vessels that are needed to traverse the freezing waters.

In February, gas production within the Arctic LNG 2 project was 83 million cubic meters, compared with 250 million cubic meters in January and 425 million cubic meters in December, according to the data seen by Bloomberg.

Novatek has been speaking with buyers in China about selling cargoes on a spot or long-term basis, but few firms are willing to take the risk of potentially being entangled by US sanctions, the people said. The company’s plan is to send most — if not all — of the LNG via the Northern Sea Route to China, and it is also trying to find Indian buyers, they said.

That passage would offer the quickest direct way of getting the gas to China when it’s open for navigation in the summer. When the waters around the project aren’t blocked by ice, a wider range of vessels can also access the facility and export its gas.

The first production train at Arctic LNG 2 is designed to produce 6.6 million tons of the fuel a year. Together with another two trains, which aren’t online, total capacity for the facility is planned at nearly 20 million tons.

--With assistance from Anna Shiryaevskaya.

(Updates with status of LNG production in third paragraph.)

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