Russia appears to be preparing for an increase in exports from its US-sanctioned Arctic LNG 2 project, prompting warnings of an uptick in the use of high-risk “shadow” tankers.
Article LNG 2, a US$20bn facility located in the Gydan Peninsula in northern Russia and developed by Russian energy company Novatek, has been subject to US sanctions since late 2023. Construction began in 2017 and shipments had been due to start early this year, but have been delayed as a result of the restrictions.
However, a paper by the Campaign for Energy and Clean Air (CREA), a Finland-headquartered organisation that monitors Russian oil and gas exports, finds that for the first time, two tankers – Pioneer and Asya Energy – have recently loaded gas from the facility.
A third LNG tanker, owned by the same company, is potentially heading in the same direction, CREA adds. As of press time, vessel tracking tools show the tanker, called Everest Energy, is currently north of mainland Norway and sailing towards Russia. Novatek did not respond when contacted.
CREA energy analyst Petras Katinas says the commencement of exports from Arctic LNG 2 is “concerning”, and suggests Russia is executing a longer-term strategy to continue exporting gas – likely to Asia – lessening the impact of western sanctions.
“Although initial volumes are modest, they indicate that Russia is preparing to increase LNG exports and attracting buyers, likely due to discounted prices,” he says. “If these export activities are not curtailed, it is only a matter of time before volumes rise.”
The paper adds that as many as 50 LNG tankers have now been purchased by unknown companies and re-registered in the UAE and India – tactics previously used to facilitate Russian oil exports. In the whole of 2024, only 64 unique tankers shipped Russian LNG.
Of those 50 tankers, nine are already identified by CREA as so-called shadow vessels, a fleet of largely ageing tankers relied upon by Russia to skirt sanctions that have become notorious for location signal manipulation and document forgery.
The findings dash hopes in the US and EU that sanctions could prevent completion of the Arctic LNG 2 project.
A June research paper by Ignacio Urbasos Arbeloa, an analyst at the Elcano Royal Institute, a Madrid-based think tank, had suggested that sanctions “focused on blocking technology transfer, access to finance and, especially, acquiring transport and logistical capabilities could further derail the project”.
The project had attracted billions of dollars in financing, but some backers – including French energy giant Total and Japan’s export credit agency – later withdrew support following Russia’s invasion of Ukraine.
Ice breakers and floating storage
One risk of Russia scaling up seaborne LNG exports and expanding its shadow fleet is that western banks, traders, insurers or shipping companies could unwittingly be exposed to sanctioned activity.
Ageing tankers – particularly those that conceal their activity – are also proving to be an environmental hazard.
The CREA paper points out that if Arctic LNG 2 reaches full production capacity, it is not immediately clear how it will be able to export that output to buyers in Asia.
The organisation has so far only identified four shadow vessels able to navigate Arctic ice, which in the winter months require the help of an icebreaker. Taking a longer route via the Suez Canal could take as much as six months, potentially making the transaction economically unviable.
If Russia uses both options simultaneously, it could export around 77% of Arctic LNG 2 output but would likely face heavy transportation and insurance costs, the paper suggests.
However, there are signs Russia could deploy vessels as floating storage units (FSUs), which load and unload LNG through high-risk ship-to-ship transfers.
This would “create a logistical chain where ships arriving from the Arctic transfer their cargo (either partially or entirely) to an FSU, while ships from Asia collect and deliver them to customers”, CREA says.
“This logistics chain would allow Russia to transport LNG year-round from the Arctic, including the sanctioned Arctic LNG 2 project.”
One shadow tanker has already been operating as an FSU near the Suez Canal “for some time”, it finds.
CREA is calling on western countries to impose sanctions on specific vessels capable of carrying Russian LNG through Arctic ice, and to deny access to ports and other maritime services to those that carry out a ship-to-ship transfer with a shadow vessel.
Further measures could include “imposing stricter monitoring, increasing the transparency of ship ownership and insurance, and quickly blocking vessels involved in breaching sanctions”, it suggests.
And unlike with crude oil tankers, Russia’s shadow LNG vessel fleet is still relatively small and therefore easier to track.
“The limited number of ships involved means that Western authorities have a greater chance to enforce sanctions rigorously and prevent Russia from developing a similar workaround in the LNG sector,” the CREA paper says.
The post Russia looks to scale up Arctic LNG exports as shadow fleet grows appeared first on Global Trade Review (GTR).
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