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Russia faces serious challenges in LNG sphere due to U.S. sanctions, Reuters

Russia faces serious challenges in LNG sphere due to U.S. sanctions, Reuters Illustrative photo (Photo: Getty Images)
Author: Daria Shekina

The U.S. sanctions pose a serious obstacle to Russia's plans to increase liquefied natural gas (LNG) exports to compensate for the reduction in pipeline gas exports to Europe, reports Reuters.

As the fourth largest producer of LNG in the world after the United States, Qatar, and Australia, Russia aims to increase its market share to about 5th from its current 8%, tripling its production volume to over 100 million metric tons by 2035.

"The impact of restrictions on LNG is more severe because of the relatively small number of tankers that can carry LNG and Russia's lack of access to technology and finance," the material states.

Russia's efforts to redirect gas sales to China, the world's second-largest energy consumer after the United States, have so far had limited success.

Ongoing negotiations to increase current gas sales to the country by more than double via the Power of Siberia 2 pipeline have yet to culminate in a reliable contract.

Issues with the Arctic LNG 2 project

Reuters reports that the Arctic LNG 2 project, controlled by Russia's largest LNG producer, Novatek, is facing delays.

Commercial LNG deliveries under the project are expected no earlier than the second quarter of 2024 or later, whereas Novatek had previously stated they would commence deliveries in the first quarter.

The capacity of Arctic LNG 2, with three lines, will be 19.8 million tons per year and 1.6 million tons of stable gas condensate per year. U.S. sanctions have already led Novatek to declare force majeure circumstances regarding deliveries for the project.

The tanker problem

Novatek announced that for the Arctic LNG 2 project, the Russian shipyard Zvezda will build 15 Arc7 ice-class tankers capable of breaking through 2-meter thick ice.

Additionally, six Arc7 tankers were supposed to be constructed by Hanwha Ocean, formerly known as Daewoo Shipbuilding & Marine Engineering. Among these, three were ordered by the Japanese company Mitsui OSK Lines and three by the leading Russian tanker group, Sovcomflot.

However, three tankers ordered by Sovcomflot were canceled due to sanctions against Russia. Hanwha mentioned this in regulatory documents.

U.S. sanctions on Arctic LNG 2

On November 2nd, the Arctic LNG 2 project was placed on the U.S. sanctions list concerning Russia's production and export capabilities in the energy sector.

Geoffrey Pyatt, U.S. Assistant Secretary of State for Energy, stated that Washington aimed to "kill" this Russian project.