The U.S. continues tightening the screws to dismantle Putin’s $20+ billion liquefied natural gas (LNG) export project.

Senior executives at Novatek stated that they visited Mumbai in February, where they met with representatives of shipping companies. To seek new customers, they have also opened an office in China. The company has repeatedly attempted to finalize deals in China and other Asian countries. To persuade buyers to accept sanctioned LNG, they are even prepared to offer a 40% discount. Yet their efforts to secure LNG buyers for Russia’s largest LNG project remain unsuccessful. Even India—which is willing to purchase Russian oil at discounted prices—refuses to touch LNG supplied by the U.S.-blacklisted Arctic LNG 2 project. On September 27, the Times of India reported that Indian Petroleum Minister Pankaj Jain told media during an interview on that day: “We will not purchase LNG from Arctic LNG 2. We do not buy any sanctioned goods. We will not handle cargo subjected to broad-based sanctions.” Clearly, U.S. sanctions against Russia are taking effect. The U.S. is closely monitoring the destination of sanctioned Russian goods, and the White House will continue tightening regulatory oversight over Russian LNG exports. Thirdly, the Arctic LNG 2 project has essentially collapsed: Phase II construction has halted, and Phase III commencement has been postponed. According to Russian media reports, Arctic LNG 2 is a key Russian investment, with initial funding reaching $21 billion. However, fundraising for the project has progressed extremely slowly due to sanctions imposed by the U.S. and other Western countries. Under the project’s original shareholder structure, Russian energy giant Novatek—holding controlling interest—owns 60% of shares, while Chinese enterprises CNPC and CNOOC, French firm TotalEnergies, and the Japanese Arctic LNG Consortium each hold 10%. Due to U.S. sanctions against Russia triggered by the Russia-Ukraine conflict, the project’s launch suffered direct blows from the United States. In November 2023, the U.S. Department of the Treasury added a Novatek subsidiary—the majority shareholder of Arctic LNG 2—to its sanctions list. The negative ripple effects of these sanctions quickly materialized. Recently, Novatek announced it can no longer supply LNG to certain buyers as scheduled. Subsequently, on September 5, 2024, the U.S. imposed sanctions on two companies and two vessels linked to Russia’s Arctic LNG 2 project. According to Mitsui O.S.K. Lines (MOL), delivery plans for specialized vessels destined for Russia’s new LNG facility were suspended due to U.S. sanctions—a development threatening the company’s export capacity. Takeshi Hashimoto, President of MOL, said in an interview that, owing to U.S. restrictions, Japanese shipping firms can no longer lease three ice-breaking LNG carriers to the Arctic LNG 2 project, and selling these vessels may prove challenging. Hashimoto noted that MOL is collaborating with both the U.S. and Japanese governments to seek solutions. The first of the three ice-breaking vessels is scheduled for completion later this year. Previously, Arctic LNG 2’s overseas partners—including Japan’s Mitsui & Co. and France’s TotalEnergies—announced their suspension of participation in the project, citing force majeure.

Microcosm Reveals Macro Trends: A Barometer of U.S.–Russia Relations (Part II): Resumption of the Arctic LNG 2 Project (A Review of U.S./EU Sanctions Against Arctic LNG 2)

• TotalEnergies: In 2018, TotalEnergies signed a final agreement with Russian company Novatek to acquire a 10% direct stake in the Arctic LNG 2 project. • CNPC: On April 25, 2018, China National Petroleum Corporation’s (CNPC) wholly owned subsidiary, China Petroleum International Exploration & Production Company Limited, signed a framework cooperation agreement with Novatek on the Arctic LNG-2 project, formally confirming its participation. • CNOOC: On April 25, 2018, China National Offshore Oil Corporation (CNOOC) announced it had reached an agreement with Novatek to acquire a 10% stake in the Arctic LNG-2 project. • Japan’s Mitsui & Co. and JOGMEC: In June 2019, during the G20 Osaka Summit, Novatek announced agreements with Japan’s Mitsui & Co. and the Japan Organization for Metals and Energy Security (JOGMEC), under which Mitsui & Co. and JOGMEC jointly acquired a 10% stake in the Arctic LNG 2 project. 2. Participants across the value chain: • Upstream gas field development: The project develops the Utrenneye field located on Russia’s Gydan Peninsula. Novatek oversees exploration, drilling, and other development activities. To date, 50 wells have been drilled; the total number of planned wells exceeds 200. • Midstream liquefaction production: Three LNG production trains are being constructed on Russia’s Gydan Peninsula, with a designed total annual capacity of 19.8 million tons—6.6 million tons per train. The first train commenced operations in December 2023; the second was originally scheduled to start up in 2024, and the third in 2026. • Downstream transportation: Originally, 21 ice-class LNG tankers were planned for LNG transport—including six vessels ordered from South Korea’s Hanwha Ocean (formerly DSME) and 15 LNG carriers to be built by Russia’s Zvezda Shipyard. Due to sanctions, transportation strategies have been adjusted: Russia has formed a so-called “shadow fleet,” transferring vessel ownership to circumvent sanctions, and acquired transport vessels such as the Pioneer. • Downstream shipbuilding: In 2019, Novatek arranged for Russia’s Zvezda Shipyard to construct 15 ice-breaking LNG carriers for the Arctic LNG 2 project and entered into a cooperation agreement with Samsung Heavy Industries, under which Samsung’s Geoje Shipyard would fabricate hull blocks and other sections for subsequent assembly at Zvezda. That same year, Samsung Heavy Industries and Zvezda concluded an agreement covering the first five ice-breaking LNG carriers. In 2020, Samsung Heavy Industries and Zvezda signed contracts for another ten ice-breaking LNG carriers; in October 2020, Sovcomflot—via a Russian shipowner—signed contracts with Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean) for three ice-breaking LNG carriers. • Downstream engineering, procurement, and construction (EPC): In 2019, project owner Novatek awarded Technip Energies an EPC contract valued at USD 7.6 billion. Technip Energies subcontracted part of the LNG train module fabrication work to Boskalis, Peng Lai Jutao, COSCO Shipping Heavy Industry, Wison Clean Energy, Qingdao Wuchuan McDermott, and Russia’s Voskhod Heavy Industry. Specifically: Qingdao Wuchuan McDermott fabricated one liquefaction module and two boil-off gas modules for Trains 1 and 2; Peng Lai Jutao manufactured six compression and electrical modules; Wison Zhoushan produced twelve pipe-rack modules; COSCO Shipping Heavy Industry built two dehydration modules and one feed stabilization module; and Voskhod Heavy Industry was responsible for constructing two dehydration and boil-off gas modules, plus ten other modules. • Downstream sales: All LNG supply contracts have been signed. Eighty percent of the project’s output is slated for the Asia-Pacific market, with China as one of the primary target markets. CNPC and CNOOC each signed 20-year long-term take-or-pay contracts for 2 million tons per year.

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