In the Gulf of Ura in Russia's far north, previously a base for nuclear submarines, a gas eldorado was planned. Here, Novatek, Russia's largest privately-owned gas company and a competitor to the state-owned Gazprom, intended to establish two pivotal facilities for liquefying natural gas and dispatching it globally: Yamal LNG and Arctic LNG 2 across the bay.
The vision was for Arctic LNG 2 to become the largest gas liquefaction plant in Russia, revitalizing Putin's dream that was dissipating amidst war. Prior to the invasion of Ukraine, the Energy Strategy of the Russian Federation, sanctioned on June 9, 2020, aimed for Russia to produce 80 to 140 million tons of LNG annually by 2035, with the Arctic contributing 100 million tons. This would position Russia as the foremost producer of liquefied gas worldwide.
Post-Ukraine invasion, Russia persisted with the Arctic LNG 2 project, as maritime gas transport gained new significance amidst the evolving geopolitical landscape. Initially, it was seen as a way to offset losses from reduced pipeline deliveries to Western Europe – due to EU sanctions on such gas – and to expand market reach towards Asia, particularly China and India.
The erosion of the Russian project
Originally, Arctic LNG 2 was projected to have three production lines, each capable of liquefying up to 7.3 million tons of gas annually, totaling about 21.9 million tons per year from the Utrenneye field on the Gydan Peninsula.
The plan encompassed an extensive infrastructure for gas transport, with a terminal that could accommodate two bulk carriers simultaneously and icebreaker-class gas carriers. Not only would this facilitate access to Asian markets, but it would also make LNG transport to Europe more efficient and cost-effective.
However, sanctions have curtailed the scope of the project, rendering Novatek unable to proceed as intended. Reports from the Russian newspaper "Vedomosti" and findings by Reuters indicate a reduction in Arctic LNG 2's capacity to two production lines, decreasing its output to approximately 14.6 million tons annually. Despite Russia maintaining a facade of success, this reduction signifies tangible losses in revenue.
He further explains that U.S. sanctions hindered the transfer of six Arc 7 class gas carriers from South Korea's Hanwha shipyard. These carriers were destined for Sovkomflot and Mitsui OSK Lines of Japan but were aimed at LNG transport from Novatek's facilities. The anticipation of secondary sanctions also led the shipyard to halt work on an additional 10 vessels intended for Arctic LNG 2, leaving Russia short of the required 13 units for the terminal's operation.
According to Deutsche Welle, Russia ranked as the second-largest LNG supplier to the European Union in 2023, constituting 8 percent of the EU's gas supplies, which increased to 15 percent when including LNG.
"France, Spain, and Belgium were the primary importers, accounting for 87 percent of the EU's Russian LNG imports in 2023. Not all imported LNG was consumed within the EU; 22 percent was re-exported from European ports to destinations including Asian countries," reports the Centre for Research on Energy and Clean Air (CREA) data reviewed by Deutsche Welle.
Discussions about a new EU sanctions package are primarily focused on banning the re-export of Russian LNG from European ports and combating the shadow fleet while also considering sanctions against major Russian LNG projects like Arctic LNG 2 and critical Baltic terminals such as UST Luga LNG and facilities in Murmansk.
