Reuters: Sanctions may force Russian company to scale back Arctic LNG project

Russian gas producer Novatek is considering scaling back a major liquefied natural gas (LNG) project due to the impact of Western sanctions, Reuters reported on April 4, citing sources in the industry.

Novatek is Russia's largest LNG producer and the country's second-largest natural gas producer.

The company has a 60% share in the Arctic LNG-2 project, a planned LNG extraction site in northern Siberia that intends to produce 19.8 million metric tons of LNG annually.

The US imposed sanctions on the Arctic LNG-2 project at the end of 2023, which prompted foreign shareholders to freeze participation and Novatek to issue force majeure declarations to multiple clients.

According to Reuters, sanctions also meant that Novatek could not purchase enough ice-class tankers needed for the project, leading the company to "focus instead on developing its project at the ice-free port of Murmansk."

The scaling back of the Arctic LNG-2 project may complicate Russia's aim to increase its share of the global LNG market from 8% to 20% by 2030, offsetting the economic impact of sanctions on Russian pipeline gas exports.

The company's Murmansk LNG project, however, is set "to be even larger than Arctic LNG-2, with an eventual output of 20.4 million tons per year," Reuters said.

The project also has access to an ice-free port in the Barents Sea, unlike the Arctic project.

While the flow of Russian pipeline gas into the EU dropped in 2022, several European countries saw record purchases of Russian LNG last year.

While the EU has banned the supply of equipment to Russia for the production of LNG, no EU-wide ban has been imposed on buying LNG from Russia.

EU pressures European importers to cut down Russian LNG purchases in 2024

“My message was that this year must bring further disengagement from Russian exports,” Energy Commissioner Kadri Simson told Bloomberg following an EU-U.S. Energy Council meeting in Washington.

The Kyiv IndependentMartin Fornusek