How Russia’s LNG ‘dark fleet’ masks its activity

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Tensions in the Middle East have driven oil prices higher in the past week; On Monday, benchmark Brent crude broke above $80 a barrel for the first time since August.

But oil isn’t the only commodity traders are worried about. The price of the Title Transfer Facility, the European benchmark for natural gas, has risen nearly 23 percent since mid-September, when Israel began its campaign against Hezbollah.

Prices are rising even as European gas storage is relatively full ahead of winter as traders worry about any disruption to LNG shipments from Qatar.

After gas imports from Russia were halted following its large-scale invasion of Ukraine, Europe’s dependence on LNG shipments increased substantially. LNG currently accounts for around a third of EU gas demand and 10% of this comes from Qatar.

As prices rise, traders have begun to divert shipments that were destined for Asia to Europe. Bloomberg noted on Monday that three LNG tankers carrying U.S. fuel changed course last week from China and South Korea to head for Europe.

Meanwhile, in our feature piece today, Shotaro Tani looks at an LNG source struggling to find an easy path to market.

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Counterfeiting and Fake Transfers: How Russia’s LNG ‘Dark Fleet’ Works

Russia’s “dark fleet” of liquefied natural gas tankers has resumed operations in recent months, underscoring the country’s determination to bring the super-refrigerated fuel to market in defiance of Western sanctions.

Since early August, eight shipments are suspected to have been made from Arctic LNG 2, a flagship project crucial to increasing Russia’s presence in the sector, despite Western sanctions on both the project and the ships carrying the fuel produced at the facility.

Western sanctions have so far proven effective in deterring potential buyers; shipments have either gone to storage sites or remain afloat as of now. That “absolutely” has led to these vessels increasingly engaging in activities to confuse observers about where the fuel actually is at sea, said Kjell Eikland, managing director of the consultancy Eikland Energy in Oslo.

One example is Pioneer, the first ship to load from Arctic LNG 2. After loading in early August, it made its way to the eastern Mediterranean, where it was seen alongside another LNG carrier, Nova Energy (named New Energy at that time). Observers believed this to be a ship-to-ship transfer operation moving Pioneer’s cargo to New Energy.

But this turned out to be a disguised operation, revealed only when Pioneer passed the Suez Canal in late September. The vessel had to report the draft level to the Suez Canal Authority, which revealed that the vessel was still carrying LNG. It has since become the first laden LNG carrier to transit the Red Sea since January amid continued Houthi attacks. His reported destination was set to “DO NOT SUPPORT ISRAEL” as he passed through the area.

Or take Nova Energy’s docking at Saam FSU, a floating storage unit anchored in a bay in northern Russia’s Murmansk region, where two ships had previously unloaded fuel from Arctic LNG 2. After its mock ship-to-ship transfer with Pioneer, Nova The Energy returned to the Russian Arctic, where it was seen docking with the storage unit in late September.

The vessel, however, appears to have rigged a cargo there and was recently seen back at Arctic LNG 2, where it is believed to have refueled.

“Concerted attempts to falsify ship-to-ship transfers show that Arctic LNG 2 is making efforts to obfuscate where its production is going,” said Tom Marzec-Manser, head of gas analysis at consultancy ICIS.

“As these vessels carry out these activities, it will become more difficult to determine where these vessels have been loaded and unloaded,” he said. “These maneuvers are as much about creating doubt as they are about rendering an alternate reality.”

Detecting the dark activities of the fleet in the LNG space is easier than compared to oil tankers. Because the number of vessels in operation is much smaller, whenever an LNG carrier engages in suspicious activity, analysts, traders and shipbrokers are likely to notice.

In addition to tracking transponder signals, satellite imagery has also proven useful in determining what’s going on.

But knowing what is happening with 100% certainty is impossible. One reason is that satellite images are not perfect; images may be obscured by clouds or simply missing for a relevant period of time.

Even if you have the images, “it can’t say for sure if and how much LNG has been transferred between ships,” said Gillian Boccara, director of gas and LNG at Kpler, a ship-tracking group. “Furthermore, vessels report draft information infrequently and voluntarily, which reduces the reliability of this data.”

In other words, the chances that someone could discreetly import Arctic LNG 2 cargo – financing Russia’s wartime economy in the process – cannot be completely ruled out.

This “became a dynamic game,” Eikland said. “We probably haven’t seen the end of fakery, diversions, and creative breastfeeding yet.” (Shotaro Tani)

Power points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global reporting team. It reaches us at [email protected] and follow us on X at @FTEnergy. Keep up to date with previous editions of the newsletter Here.