Sanctions Force Russia’s Arctic LNG 2 Project To Halt Operations & Exports

The Arctic LNG 2 project, a key Russian liquified natural gas (LNG) facility, has stopped production due to ongoing Western sanctions that have restricted its ability to export.

The plant, located on the remote Gydan Peninsula, has been unable to find buyers for its LNG due to strict U.S. sanctions that prevent international clients from purchasing Russian gas, as per the source familiar with the matter.

The plant’s production was stopped on October 11, the second shutdown this year after a previous halt in April.

Since August, Arctic LNG 2 has loaded eight LNG shipments using a fleet of conventional carriers whose ownership is less transparent.

Despite efforts to bring these shipments to market, none have yet been sold. They are currently stored in floating storage facilities near Murmansk and Kamchatka.

The situation has been further complicated by Russia’s recent ban on conventional ships using its eastern Arctic waters, and early winter ice conditions have restricted routes to Asia.

This restriction forces Arctic LNG 2 to rely on Specially equipped high-ice-class vessels to make it through the challenging conditions.

However, the facility currently lacks these carriers. South Korea’s Hanwha has five Arc7 ice-class ships that are ready but cannot be delivered due to sanctions.

Additionally, Russian shipbuilder Zvezda plans to produce more Arc7 carriers by early 2025 to support Arctic LNG transport, however they will not be available for several months.

The Arctic LNG 2 project may experience further operational issues in winter.

Experts warn that extended shutdowns lasting over six months may necessitate extensive preparation before the facility can safely restart operations. The previous shutdown lasted less than four months, but a longer halt could complicate the restart process.

Despite major difficulties, Arctic LNG 2’s main stakeholder, Novatek PJSC, plans to complete all three trains of the 19.8 million-ton annual capacity project.

Power units for the second production line are expected to arrive soon from Chinese supplier Wison New Energies. However, with tightened sanctions and no demand, the timing for restarting production is questionable.

Geoffrey Pyatt, a U.S. State Department official, stated earlier this month that Washington expects to continue tightening sanctions on Russian LNG to cut off Moscow’s revenue sources that could be used to fund the Ukrainian war.

Due to these measures, the plant’s daily gas production has decreased from an average of 12.1 million cubic meters in September to around 5.3 million cubic meters this month.

Satellite imagery has confirmed reduced activity at the facility, indicating that production was scaled down after October 11.

Reference: Bloomberg, Oil Price

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