Western sanctions fray Russia's Arctic LNG ambitions

This was to be the largest Russian investment in liquefied natural gas (LNG) infrastructure. It would have allowed Novatek to challenge suppliers from Qatar and the USA and boost Russia's budget. However, their ambitious plan is crumbling due to Western sanctions.

In the far north of Russia, in the Gulf of Ura, the former base of nuclear submarines, a Russian gas eldorado was to emerge. There, Russia's largest private gas company and, at the same time, the competitor of the state-owned Gazprom, Novatek, located two of the most important facilities for liquefying natural gas (LNG) and sending it to the world: Yamal LNG and Arctic LNG 2 on the opposite shore of the bay.

It was the latter that was to become the largest gas liquefaction plant in Russia. It was also supposed to resurrect Putin's dream, melting in the fire of war. According to the strategy formulated before the invasion of Ukraine (from the Energy Strategy of the Russian Federation approved on June 9, 2020, until 2035), by 2035, Russia was supposed to produce from 88 to even 155 million tons of LNG annually, with as much as 110 million tons just in the Arctic. Novatek's investments were to make Russia the world's largest producer of liquefied gas.

Following the invasion of Ukraine, Russia, despite increasingly burdensome sanctions, pressed on with the Arctic LNG 2 project in its original form, as, in the new geopolitical realities, gas transported by sea has become a key commodity. First, it was to cover the losses from reduced supplies to Western Europe through pipelines (the European Union imposed sanctions on gas transported in this way, but not on Russian LNG). Second, it was supposed to aid in expanding towards Asia, mainly China and India.

Originally, Arctic LNG 2 was to be equipped with three production lines, each liquefying up to 8 million tons of gas annually. This would give a total production capacity of about 24 million tons of LNG annually from the Utrenneye field on the Gydan Peninsula.

However, sanctions have already led to a limitation in the scale of this project. Novatek is unable to complete the investment as planned. According to reports by the Russian newspaper "Vedomosti" and findings by Reuters, it will ultimately be necessary to limit the Arctic LNG 2 infrastructure to two production lines. This will measurably reduce the capacity to about 16 million tons annually. Although Russia still maintains a rhetoric of success, the reduction in capacity will mean real losses in revenue.

U.S. sanctions also had a secondary effect, as they carry the risk that any company cooperating with Arctic LNG2 could also be subjected to sanctions.

According to the German portal Deutsche Welle, Russia is today the second-largest supplier of liquefied natural gas to the European Union. Russian gas accounted for 8 per cent of the EU's supplies in 2023, but if we include LNG, it will reach 15 per cent.

France, Spain, and Belgium were particularly large importers. These three countries accounted for 87 per cent of the Russian LNG imports to the Union in 2023. EU countries import raw materials from Russia for their use. According to data from the Centre for Research on Energy and Clean Air (CREA) collected by Deutsche Welle, in 2023, 22 per cent of Europe's LNG imports from Russia were reloaded in European ports to continue further into the world, including to countries in Asia.