Vladimir Putin’s flagship Arctic gas project is struggling to attract customers

Russia has been forced to start stockpiling gas from Vladimir Putin’s flagship Arctic project, in a sign that Western sanctions are deterring buyers.

According to vessel tracking data and satellite imagery, three ships have delivered liquefied natural gas from the US-sanctioned Arctic LNG 2 since it began loading operations last month.

One of the vessels, Everest Energy, appears to have unloaded at the Saam FSU, a floating storage unit anchored in a bay in the Murmansk region of northern Russia. Since then, it has turned towards Arctic LNG 2.

The transfer “highlights the challenges Russia faces in finding buyers for its sanctioned LNG,” said analysts at Kpler, a data and analytics platform.

The other two shipments also remained in Russian or European waters and were not delivered to a buyer.

Arctic LNG 2 was conceived as a totemic project for the Kremlin: its planned full output was to represent a fifth of Russia’s annual LNG production target of 100 million tonnes by 2030, which would be three times than the volume exported by the country. now.

Cloud-penetrating radar images taken by the European Space Agency’s Sentinel-1 satellites show a large ship matching the size of Everest Energy pulling up alongside the Saam FSU, although cloud cover prevented many clear pictures of the ships.

Last year, the US added Arctic LNG 2, which is run by private energy company Novatek, to the sanctions list in response to Moscow’s full-scale invasion of Ukraine.

Russia tried to counter the sanctions by amassing a “dark fleet” of LNG carriers to export the gas, but the U.S. in late August quickly imposed sanctions on those ships and management companies, which analysts and traders said likely scared off potential buyers for now. .

The first vessel to take fuel from the project, Pioneer, transferred its LNG to an unauthorized vessel in the eastern Mediterranean north of Egypt’s Port Said in late August, but both vessels have since held their positions.

The Asya Energy, the second vessel to load from the Arctic facility, initially made its way around the Norwegian Sea after picking up cargo, but returned to Russian waters without unloading. It is now near the Saam FSU, ship tracking data from consultancy ICIS showed.

These ships sought to disguise their movements by “spoofing” or their electronic identification transponders broadcasting false positions. For example, Pioneer’s transponders indicated the ship was in the sea north of Norway, when satellite images showed it was actually taking LNG from the Arctic facility.

Concern has grown over such behavior by the fleet serving Russia’s energy industry: in June, the EU added the use of “irregular and high-risk shipping practices” to its grounds for imposing sanctions.

Pioneer, Asya Energy and Everest Energy have all had their registrations suspended by authorities in the Micronesian nation of Palau, where they were flagged, following the latest US sanctions.

Kjell Eikland, managing director at Eikland Energy, an Oslo-based energy consultancy, said: “Whatever interests the buyers may have had before (the latest US sanctions) are certainly gone now.”

LNG exports add to the energy revenues that sustain Russia’s wartime economy, though on a much smaller scale than pipeline exports to Europe, which were curtailed after its large-scale invasion of Ukraine.

Novatek’s hydrocarbon sales revenue for the three months to June rose 15% year-on-year, suggesting a moderate increase in delivery volumes. However, since the invasion of Ukraine, Novatek, like many Russian companies, has stopped publishing detailed breakdowns, making it difficult to assess how much of the revenue came from Arctic LNG 2.

LNG and sanctions experts agree that because of US sanctions, there is little chance that European countries or Western allied nations will import from the Arctic project. However, the sanctions are unlikely to fully prevent LNG from reaching countries outside this group, analysts said.

“The history of energy sanctions tells us that someone will be willing to swallow the risk and import these volumes,” said Francis Bond, sanctions specialist at law firm Macfarlanes.

“The most likely buyers are therefore those outside Russia’s ‘sanctions coalition’, the largest of which are India and China. . . (both) remain very vocal at the state level in their opposition to US extraterritorial measures.”

The two countries have become the cornerstone of Russian oil following the price ceiling imposed by the West. But a report by a major Russian bank, published in May and seen by the Financial Times, suggested that Moscow was likely to face similar challenges to its LNG shipments to Asia to crude oil: buyers were expected to demand discounts.

“It’s definitely an uphill battle for Novatek,” said Sergey Vakulenko, a senior fellow at the Carnegie Endowment for International Peace. “The US seems to be much more intentional (in imposing sanctions) when it comes to Arctic LNG 2” compared to its actions on oil.

“But over the years, Novatek has proven to be an adept operator. Is there any chance they can find a way around all of this.”

Novatek did not respond to a request for comment.