While Russia has managed to keep oil exports steady, its gas industry is facing significant challenges, especially with the Arctic LNG 2 project, a major gas export facility. Launched to open new markets after the closure of Russia’s main gas pipeline to Europe in 2022, Arctic LNG 2 has now suspended operations until next summer due to sanctions cutting off its access to ships and buyers. These sanctions are aimed at undermining Russia’s capacity to finance its war in Ukraine.
Russia previously relied heavily on piped gas to Europe, with this export accounting for 69% of its total gas sales in 2021. Given the difficulty of redirecting pipelines, Russia’s gas future now hinges on expanding liquefied natural gas (LNG) exports to other buyers. Arctic LNG 2 is central to this strategy, designed to process 27 billion cubic meters (bcm) of gas annually. It also serves as a prototype for future Russian LNG terminals, with its innovative Arctic-proof design featuring floating concrete platforms.
Western countries have tightened sanctions on Arctic LNG 2 to prevent Russia from gaining new buyers. In May 2022, the EU restricted access to Western technology for the plant, followed by an American blacklist 18 months later. However, Russia’s Novatek had already secured much of the equipment for the first two gas processing units, or “trains.” Though initially dependent on American-made turbines, Novatek adapted the project to work with Chinese replacements. Chinese companies have continued to discreetly supply Novatek, using tactics like renaming and repainting vessels.
Despite these efforts, Novatek faces severe setbacks with shipping. The Arctic LNG 2 project requires specialized Arc7 tankers to export gas year-round, as these vessels can break through ice. Novatek ordered six Arc7s from South Korea and 15 from Russia, but sanctions halted payments to South Korea, preventing delivery of the first three tankers. Attempts to transfer these tankers to a Dubai-based Novatek affiliate fell through when the U.S. intervened. Meanwhile, only two of the Russian-built Arc7s are nearing completion, as sanctions have disrupted access to critical parts.
Sanctions on Arctic LNG 2 are proving more effective than those on Russian oil. With the global LNG fleet smaller and more specialized, it’s easier to monitor LNG exports, making it harder for Russia to evade restrictions. Additionally, anticipated increases in LNG production outside Russia, particularly from the U.S., should keep prices stable. However, the effectiveness of these sanctions ultimately depends on sustained international commitment to pressuring Russia’s gas sector.
These developments underscore the critical need for sanctions targeting Russia’s energy sector to continue and expand. Limiting Moscow’s access to global gas markets not only undermines a major revenue source but also restricts Russia’s ability to sustain its military efforts in Ukraine. To effectively curb Russia’s war financing, world leaders must enhance sanctions on projects like Arctic LNG 2, further isolating Russia’s gas industry from global trade.
