Arctic LNG 2: The litmus test for sanctions against Russian LNG [Gas Expert Insights]
Arctic LNG 2 project has become a focus point of the most recent rounds of the sanctions on Russian LNG. The first 6.6 mtpa liquefaction train of the project was launched in December 2023, despite the limitations on supply of western equipment and technology. The second 6.6 mt liquefaction train is at an advanced stage of readiness and could be launched in early 2025. However, output from the plant has remained well below capacity owing to the lack of Arctic class LNG tankers as a result of the sanctions on the logistics end of the value chain. In August-September 2024, the first shipments of LNG from the project started with the use of the so-called ‘shadow fleet’ of conventional LNG tankers which can be used during the summer navigation season. At the time of writing, however, there has been no confirmation of any cargoes reaching final customers, and the whole issue of the marketability of LNG from the project is up in the air due to the additional risk of secondary sanctions for potential buyers.
This comment reviews the development of the project amid sanctionary pressure, focusing on three main points of analysis. Firstly, the vulnerability of Russian LNG projects to sanctions is very high due to a complex value chain and multiple dependencies on unique technologies. Secondly, the recent focus of the sanctions on the logistics of the Russian LNG value chain has proven to be especially effective, delaying new projects, reducing their utilization, and increasing transactional costs. Thirdly, the ability of Arctic LNG 2 to market its output using specialized tankers and alternative shipping routes is being compromised. The success or failure of Arctic LNG 2 will prove to be an ultimate litmus test for the progress of Russia’s LNG program.
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