June 23, 2024
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Foreign Shareholders Suspends Participation in Russia’s Arctic LNG 2

Foreign shareholders halted their involvement in the Arctic LNG 2 project as a result of sanctions, Reuters reported on Monday.

They relinquished their obligations to provide financing and to enter into offtake contracts for the new Russian liquefied natural gas (LNG) plant.

Russia’s initiative to increase its LNG global market share to 20% by 2030 from 8% is encountering challenges. These obstacles include U.S. sanctions related to the conflict in Ukraine, as well as a shortage of gas carriers.

China’s state oil majors CNOOC Ltd (0883.HK) and China National Petroleum Corp (CNPC) each have a 10% stake in the project, which is controlled by Novatek (NVTK.MM), Russia’s largest LNG producer and owner of a 60% stake in the project.

Both Chinese companies, together with France’s TotalEnergies (TTEF.PA) and a consortium of Japan’s Mitsui and Co (8031.T) and JOGMEC – which also have a 10% stake each – declared force majeure on participation in the project.

Novatek, CNOOC, JOGMEC and Total did not immediately respond to requests for comment. CNPC and Mitsui declined to comment.

Kremlin spokesman Dmitry Peskov declined to comment on the developments at the Arctic LNG 2 project, referring the questions to Novatek.

The newspaper said the suspension may lead to Arctic LNG 2 losing its long-term contracts on LNG supplies, while Novatek will have to finance the project by itself and sell the seaborne gas on the spot market.

Initial investments in the Arctic LNG 2 project stood at $21 billion. It already faced difficulties in raising funds following Western sanctions against Russia.

Sanctions have also resulted in Novatek declaring force majeure over LNG supplies from the project, industry sources told Reuters last week.

The European Union may also impose restrictions on Russia’s LNG supplies.

A Beijing-based industry official with direct knowledge of the matter told Reuters last week that CNPC and CNOOC have both asked the U.S. government for exemptions from sanctions on Arctic LNG 2.

The second train of the project is due to become operational next year, while the third is expected to start production in 2026.

With three processing trains, Arctic LNG 2’s capacity is meant to be 19.8 million metric tons per year and 1.6 million tons per year of stable gas condensate. Production is due to start in early 2024.

Its first LNG tankers were expected to set sail in the first quarter of next year, according to Novatek.

But industry sources say commercial LNG supplies from the project are now expected no earlier than the second quarter of 2024.

Reporting by Lidia Kelly in Melbourne and Vladimir Soldatkin in Moscow; Additional reporting by Andrew Hayley in Beijing, Anastasiya Lyrchikova in Moscow and Yuka Obayashi in Tokyo; Editing by Edmund Klamann and Jamie Freed

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