Thread by @SStapczynski

How US sanctions are strangling Putin’s ambitions to grow LNG exports
🇺🇸 🥊🇷🇺

Arctic LNG 2 has been ready to start exports for months

And yet it sits virtually idle, the first piece of Russia’s energy complex to be halted by US restrictions

A thread 🧵

bloomberg.com/news/articles/…

Some background:

🚢 Russia has long sought to increase its share of the global LNG market, but the war and the subsequent sharp drop in pipeline gas Europe have reinforced the importance of these ambitions

Moscow wants to expand LNG output three-fold by 2030

Enter Arctic LNG 2, a massive complex which would boost Russia’s LNG exports by 60%

The primary mission was to develop new LNG customers in East Asia by sending fuel across the Northern Sea Route, using enormous icebreaker vessels to traverse the frozen waters

Russia holds the world’s largest share of natural gas, with ~20% of proven reserves, but it still needs to turn that into revenue

New pipelines are simply not being built fast enough to reroute sales, leaving only LNG — which Putin himself has identified as the future of the fuel

After the war in Ukraine began, the US and EU largely didn’t put restrictions on Russian natural gas

In fact, roughly 16% of EU LNG imports in 2023 came from Russia

(But the region is overall less dependent on Russian gas due to drop in pipeline flows)

aa.com.tr/en/europe/eus-…

But in early 2023, the White House began looking more seriously at how the US could curb Russia’s plans to grow LNG exports 🇺🇸

And that’s when they began to target Arctic LNG 2, which was under construction and set to begin production by the end of the year

US policymakers watched as Arctic LNG 2 steadily continued construction despite restrictions

Foreign subcontractors, including France’s Technip and Germany’s Linde , left in 2022. But Novatek — Arctic LNG 2’s biggest owner — forged new supply chains

bloomberg.com/news/articles/…

The White House’s National Security Council teamed up with the US State Department and Department of Defense to pick a target, eventually homing in on the Arctic LNG 2 project

They then brought it to the Treasury, which began implementing sanctions Nov 2

bloomberg.com/news/articles/…

The US put sanctions on the Arctic LNG 2 itself, transshipment facilities

The threat of retaliatory sanctions quickly spread through the market

Arctic LNG 2 partners, including Japan, China and France’s Total declared force majeure on participating

@malte_humpert sums it up 👇

@malte_humpert Arctic LNG 2 requires a unique type of ship that can glide through thick ice

There were 21 ice-class tankers ordered for the operation, including vessels owned by South Korea’s Hanwha Ocean Co. and Mitsui OSK. These are now struggling to find new owners because of sanctions

@malte_humpert Of course, Russia can bring in its own capacity and LNG carriers are being built at the Zvezda shipyard — but even those have been delayed by sanctions

kommersant.ru/doc/5721535?fr…

@malte_humpert So basically, the LNG at Arctic LNG 2 is trapped without the icebreaker ships

“The biggest single constraint on the development of Arctic LNG 2 is the availability of tankers. That’s the weak spot in the Russian overall strategy,” @ThaneGustafson told me

@malte_humpert @ThaneGustafson Arctic LNG 2 finished construction of its first of three production trains at the end of 2023

They were able to defy US restrictions on construction (as described in this FT piece)

But actually EXPORTING the fuel is proving to be harder
ig.ft.com/russia-sanctio…

@malte_humpert @ThaneGustafson Unlike oil exports, which have continued to flow despite a price cap and other limitations with help from a vast “shadow fleet”, LNG is trickier to keep moving, in large part because of the more complex technology required to load and ship the super-cooled fuel

🚢 🚢 🚢

@malte_humpert @ThaneGustafson Importers in China and India — places that have bought and traded Russian oil, working around existing constraints — have refused to buy even discounted shipments from Arctic LNG 2

Lawyers in Singapore and London have recused themselves from involvement in the project

@malte_humpert @ThaneGustafson Now the EU, which still leans on Russian LNG and has been reluctant to halt imports, is looking to roll out some measures (including an Arctic LNG 2 sanction) 🇪🇺

This isn’t a ban on Russian LNG, but the discussions signal that gas is no longer off limits

bloomberg.com/news/articles/…

@malte_humpert @ThaneGustafson The EU is considering a ban on re-exporting Russian LNG destined for 3rd countries. That matters because Russian plants in the Arctic are remote, so the fuel is usually sent to a Belgium/France for re-export to elsewhere. Restricting this practice will stretch Russian shipping

@malte_humpert @ThaneGustafson None of the traders and analysts surveyed by Bloomberg expected Arctic LNG 2 will reach full capacity while sanctions remain in place

Russian estimates suggest that production could in fact stagnate through 2027 under a conservative scenario

@malte_humpert @ThaneGustafson And to be abundantly clear — the US isn’t restricting exports from existing plants like Yamal and Sakhalin-II

However, the success at Arctic LNG 2 may provide a blueprint for any future Western efforts to rein in the Kremlin’s gas income

@malte_humpert @ThaneGustafson Right now, however, the US is focused on halting Russia from expanding LNG exports

The government wants to ensure the Arctic venture is “dead in the water,” said Geoffrey Pyatt, Assistant Secretary of State for Energy Resources

state.gov/assistant-secr…