Russia’s Novatek Slashes Gas Output at Sanctioned Arctic LNG 2

The Arctic LNG 2 project in Russia, which Western sanctions have hit in recent months, significantly reduced its production of natural gas in May as it hasn’t exported any LNG yet, a source with knowledge of output data told Reuters on Tuesday.  

Arctic LNG 2, in which Russian gas producer and LNG exporter Novatek has 60%, extracted 55 million cubic meters of natural gas in May, down from 215 million cubic meters in April, according to Reuters’s source.

Located in the Gydan Peninsula in the Arctic, the Arctic LNG 2 project was considered key to Russia’s efforts to boost its global LNG market share from 8% to 20% by 2030-2035.

But Arctic LNG 2 has been basically on ice since the U.S. imposed in November 2023 fresh sanctions on the Russian project.

As a result, foreign shareholders suspended participation in Arctic LNG 2, effectively withdrawing from the financing of the project and for offtake contracts for the new plant.

Arctic LNG 2 started operations such as natural gas extraction in December, but it hasn’t been able to ship any LNG cargo abroad yet.

The project has already seen months of delays after the U.S. sanctions upended the company’s plans for production start-up and export timelines.

Potential contract cancellations for the construction of ice-class LNG carriers and the sanctions on Arctic LNG 2 could hamper Russia’s plans to boost LNG sales now that its pipeline route to Europe is largely cut off.

Furthermore, Chinese engineering company Wison New Energies discontinued all ongoing Russian projects and will immediately and indefinitely stop taking any new Russian business, dealing a blow to Arctic LNG 2, for which Wison was to supply equipment for a gas turbine power station at the plant.

The EU added insult to injury as it banned last month new investments, as well as the provision of goods, technology, and services for the completion of Russian LNG projects under construction, such as Arctic LNG 2 and Murmansk LNG, in the first EU sanctions targeting Russia’s gas sector.

By Charles Kennedy for Oilprice.com

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