Major Russian Gas Project Halted by Sanctions

In a significant setback for Russia’s energy ambitions, the Arctic LNG 2 terminal, a major liquefied natural gas (LNG) project located near the Arctic Circle, has suspended its natural gas liquefaction operations due to tightened Western sanctions. These sanctions, primarily from the U.S. and European allies, aim to restrict Russia’s ability to transport and sell its energy products amid the ongoing conflict with Ukraine. Bloomberg reports that export limitations are a major factor behind this pause, as the terminal struggles with an inventory build-up due to constrained export options.

Sources, who spoke anonymously due to the sensitive nature of the information, indicated that the gas liquefaction process was halted at Arctic LNG 2 because the terminal cannot freely export its products. This operational pause is notable as it impacts one of Russia's largest efforts to establish itself as a competitive player in the global LNG market, which supplies liquefied gas to many energy-hungry nations worldwide.

Impact of Sanctions on Arctic LNG 2 Operations

The Arctic LNG 2 project, located close to the North Pole, has faced multiple waves of sanctions over the past year. The sanctions are a coordinated response from the U.S. and allied nations against Russia’s invasion of Ukraine, impacting access to specialized ice-class tankers that were built in South Korea specifically for Arctic LNG 2 operations. Foreign buyers have been deterred from purchasing Russian LNG due to these sanctions, leaving the facility with limited pathways to move its product internationally.

As a result, natural gas production at the source field that supplies Arctic LNG 2 has seen a notable drop. In October, the daily gas output plummeted to an average of 5.3 million cubic meters, which is less than half of the September daily production level of 12.1 million cubic meters.

Limited Processing to Sustain Plant Operations

Though Arctic LNG 2 has ceased commercial liquefaction, some gas processing continues to keep the plant operational. Earlier this year, the facility was still handling small volumes of gas even before initiating cargo transfers onto tankers. In August, initial shipments of LNG began using standard tankers with undisclosed ownership details. However, none of the eight shipments managed to secure buyers, raising further questions about the sustainability of the project under current circumstances.

Despite the hurdles, Arctic LNG 2 was initially designed with ambitious targets: an annual capacity of 19.8 million tons of LNG. Only one production line, capable of producing 6.6 million tons annually, is operational. The plant had ramped up its production and liquefaction activities over the summer, reaching peak levels in August when the first exports commenced.

Geopolitical Tensions and the Future of Russian LNG

The project’s challenges are emblematic of Russia’s broader struggles to maintain its energy exports amid increasing international restrictions. Recently, the Russian government considered establishing LNG and gas condensate transfer points in the Barents and Bering Seas. In one instance, a sanctioned Russian gas tanker was observed near the Suez Canal, transferring gas to an unsanctioned tanker from the UAE, underscoring the lengths to which Russian companies must go to bypass sanctions and maintain export flows.

With the tightening grip of sanctions, Russian energy giant Novatek, the operator of Arctic LNG 2, has also been forced to halt its plans for additional LNG facilities, illustrating the far-reaching effects of Western economic measures on Russia’s energy sector.