The United States is directly targeting Russia’s ability to export liquefied natural gas for the first time, which could cause disruptions in global energy markets that Washington has so far been keen to avoid.
European countries continued to import Russian LNG even after Moscow’s full-scale invasion of Ukraine last year, which triggered an energy crisis after Moscow cut supplies from gas pipelines to the continent. Until recently, the United States sought to avoid disrupting flows so as not to increase pressure on its allies facing shortages.
But in early November, the US State Department announced sanctions against a new Russian development known as Arctic LNG 2, preventing countries in Europe and Asia from purchasing the project’s gas when it It will begin production next year, according to officials, lawyers and analysts.
Francis Bond, a sanctions specialist at law firm Macfarlanes, said that by targeting the project’s operator, the United States was seeking to “toxify the project in its entirety” and would “pressure any non-US company considering ‘buy Arctic LNG flows’. 2”.
While the United States and its allies have imposed sanctions on Russian energy projects in the past in response to the war in Ukraine, seeking to deprive them of financing and equipment, this is the first time that energy supplies LNG are directly affected.
U.S. officials sought to differentiate between existing supplies and those that would hit the market in the relatively near future, but acknowledged the goal was to harm Russia’s ability to profit from selling more of fossil fuels.
“We have no strategic interest in reducing global energy supplies, which would raise energy prices worldwide and increase (Vladimir) Putin’s profits,” the State Department said. .
“We, along with our allies and partners, however, share a keen interest in seeing Russia’s status as a leading energy supplier deteriorate over time.”
Arctic LNG 2, located on the Gydan Peninsula in the Arctic, allowing it to export to both the European and Asian market, would be Russia’s third large-scale LNG project, boosting the Kremlin’s ambition to become one of the main exporters in this field. At full production, it would represent a fifth of Russia’s goal of producing 100 million tonnes of LNG per year by 2030, more than three times the volume 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 stress in the global LNG market caused by increased demand from Europe.
But Energy Aspects, a consultancy, said it was removing expected Arctic LNG 2 production from its supply and demand modeling for next year, saying sanctions would tighten the market.
Arctic LNG 2 is led by private Russian company Novatek, which has a 60 percent stake. Other shareholders are France’s TotalEnergies, two Chinese state-owned companies and a Japanese joint venture between trading firm Mitsui & Co and government-backed Jogmec, each holding 10 percent of the stake.
Shaistah Akhtar, a partner and sanctions specialist at law firm Mishcon de Reya, said the US restrictions would effectively block the project for Western buyers.
“If you comply with U.S. sanctions, as most people will if they have dealings with the U.S., they won’t buy the gas coming from the project,” she said. “Unless you have some sort of license or exemption.”
Investors in Arctic LNG 2 can withdraw gas from the project based on their stake. For Total and its joint venture partners, this would mean around 2 million tonnes when the project is in full production. But because of the sanctions, shareholders have until the end of January next year to end their investments.
Western investors “could potentially apply for exemptions with phase-down dates,” said Kaushal Ramesh, head of LNG analysis at Rystad Energy. This could allow some of the project’s LNG to flow to Western allied markets, in the same way that Japan was allowed to import Russian crude oil from the Sakhalin 2 project above the price ceiling.
Mitsui said the company would “comply with the sanctions law regarding its LNG offtakes” and was “currently studying specific details.” Jogmec said it was “collecting information from stakeholders and conducting a thorough investigation into the evolving situation.”
Total said: “The consequences of the designation. . . The American authorities on TotalEnergies’ contractual commitments on Arctic LNG 2 are currently being evaluated.”
French Finance Minister Bruno Le Maire, speaking at an event on Thursday, said the sanctions “do not present a major risk for European gas supplies” for now. However, Japanese Industry Minister Yasunori Nishimura said last week that a “certain degree” of impact on Japan was “inevitable.”
The United States has not directly targeted Russia’s other major LNG projects, Yamal LNG and Sakhalin 2, which ship the fuel to Europe and Asia.
Anne-Sophie Corbeau, a gas specialist at Columbia University’s School of International and Public Affairs, said that if Arctic LNG 2 does not begin exporting as planned in 2024, it “will keep markets a little tighter for longer.” a long time “.
The sanctions will harm Russia’s long-term ambition to increase LNG supplies and its market rivals such as the United States and Qatar. “It’s not possible,” said Laurent Ruseckas, gas expert and executive director of S&P Global. “It is too difficult to achieve this when (Russia) is excluded from so many parts of the financial system and the global economy.”
Additional reporting by Sarah White in Paris