Russia’s Arctic LNG 2 suspends gas liquefaction amid sanctions, lack of tankers

This file photograph (November 30, 2021) shows the Utrenneye field, the resource base for Novatek’s Arctic LNG 2 project, located in the Gydan Peninsula on the Kara Sea shore line in the Arctic circle, some 2500 km from Moscow on As part of the The Arctic LNG 2 mega-project gravity-based structures (GBS) a platform is being constructed in Belokamenka near Murmansk. The 450-tonne platform was expected then to house liquefied natural gas (LNG) production in the Gydan Peninsula in the western Siberia region of Russia. (Photo by NATALIA KOLESNIKOVA/AFP via Getty Images)

By Marwa Rashad and Vladimir Soldatkin

Novatek, Russia’s largest producer of liquefied natural gas (LNG), has suspended production at its Arctic LNG 2 project due to sanctions and a shortage of gas tankers, two sources familiar with the matter told Reuters on Tuesday.

The project had been hoping to start commercial deliveries in the first quarter of this year. But plans were complicated last year when it was included in Western sanctions over Russia’s conflict in Ukraine, prompting foreign shareholders to freeze participation and Novatek to issue a force majeure.

The decision to suspend converting natural gas to LNG is a blow to Russia’s goal to capture a fifth of the global LNG market by 2030-2035. It is currently the world’s fourth-largest
LNG producer with annual exports of 32.6 million metric tons.

Novatek, which started tentative LNG production at the first of the plant’s planned three trains in December, did not reply to a request for comment.

“Train one will remain shut until at least the end of June,” one of the sources told Reuters, adding that construction activities for the project were still ongoing.

The other two trains are due to be delivered to the site by sea in future from the port of Murmansk. The three trains are together targeted to produce 19.8 million metric tons per year
of LNG and 1.6 million tons per year of stable gas condensate.

The sources said the main problem was a lack of specialist tankers capable of transporting LNG – which is cooled to minus 163 degrees Celsius (minus 261.4 Fahrenheit) – and cutting
through thick sea ice.

Separately, the Vedomosti newspaper said on Tuesday that natural gas output at the project had fallen sharply to 83 million cubic meters (mcm) in February due to a delay in the
start of LNG shipments.

The sources said production had been 425 mcm in December and 250 mcm in January.

In this file photo (July 19, 2018), the Vladimir Rusanov, a liquefied natural gas (LNG) tanker ship, is seen following its arrival at the LNG terminal in Nantong city, eastern China’s Jiangsu province on following its journey from Russia’s Arctic Yamal peninsula. (Photo by -/AFP via Getty Images)

Russia faces challenges in getting specialist gas tankers. According to Novatek, 15 Arc7 ice-class tankers, able to cut through 2-meter thick ice, will be built at Russia’s Zvezda
shipyard for Arctic LNG 2.

Six more Arc7 tankers were due to be built by Hanwha Ocean, formerly Daewoo Shipbuilding & Marine Engineering, including three for Russia’s leading tanker group Sovcomflot and
three for Japan’s Mitsui O.S.K. Lines.

However, the three tankers ordered by Sovcomflot were canceled due to the sanctions against Russia, Hanwha said last year in regulatory filings.

Ice-class tankers usually have double hulls – strengthened structures to withstand the pressure of ice – and reinforced propellers.

So far, only three suitable gas tankers have been built for Arctic LNG 2, according to public information: the Alexei Kosygin, Pyotr Stolypin and Sergei Witte vessels.

This file photograph ( on December 6, 2023) distributed by Russian state agency Sputnik shows Russia’s Deputy Prime Minister Alexander Novak prior to a welcoming ceremony ahead of talks between Russia’s President and President of the United Arab Emirates in Abu Dhabi. (Photo by SERGEI SAVOSTYANOV/POOL/AFP via Getty Images)

Russian Deputy Prime Minister Alexander Novak, responding to a question on when the first LNG cargo would be delivered from the project, said on Friday that “the company is dealing with
the issues, corresponding talks are under way.” “Their main problem is with the tankers,” he added.

Ronald Smith, a senior oil and gas analyst at Moscow-based BCS brokerage, said it was unclear when – or even if – the project could get the tankers.

“Novatek is very well managed and may find a work-around to get completed ships transferred to the project somehow in the near future, or those ships may remain stuck in shipyards for an
extended period of time,” he said.

Arctic LNG 2 is led by Novatek, which holds a 60% stake. The other shareholders are France’s TotalEnergies, China’s CNPC and CNOOC, and Japan Arctic LNG – a consortium of Mitsui & Co, Ltd. and JOGMEC – each holding a 10% stake.

Mitsui declined to comment and TotalEnergies referred comments to Novatek. The other shareholders were not immediately available to comment.

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