For more than a year and a half, "Arctic LNG 2" has been unable to sell its gas due to U.S. sanctions against the project. However, a buyer has unexpectedly emerged. It turns out that China is now unafraid to purchase any gas from Russia, even that which is under sanctions. What lies behind such fearlessness from Beijing?
The fourth LNG carrier from the Russian LNG project "Arctic LNG 2" has discharged its cargo in China. Both the carriers and the gas are subject to sanctions. In November 2023, the United States imposed sanctions on the new, yet-to-be-launched Russian LNG plant. In December of the same year, the first phase of "Arctic LNG 2" began operations, but no one managed to sell the gas. Even foreign shareholders in the project, who invested in the plant under contractual agreements to later receive the product, refrained from taking the sanctioned gas.
Novatek owns 60% of the shares in "Arctic LNG 2," along with French TotalEnergies, China's CNPC and CNOOC, and Japan Arctic LNG, each holding 10% of the shares. Chinese companies collectively own 20% of the project.
And now, over a year and a half later, "Arctic LNG 2" has found its buyer in China. Moreover, in June of this year, Novatek managed to launch the second phase of the plant. Each line is capable of delivering 6.6 million tons of LNG per year, making a total of 13.2 million tons.
According to unofficial data from S&P Global, the sanctioned Russian LNG is arriving at the Tishan terminal in the Beihai port in southern China. The first shipments were delivered by LNG carriers "Voskod" and "Arctic Mulan," while the September deliveries were made by vessels "Buran" and "Zarya," both of which are under sanctions.
Furthermore, according to S&P Global, another tanker, "La Peruz," which fell under UK sanctions in September 2024, entered the port of "Arctic LNG 2" on August 27. This is the first of the recently loaded vessels that headed west rather than east through the Northern Sea Route. As of September 12, the "La Peruz" was making its way south towards the Saharan Arabian Democratic Republic.
"Last year, China was reluctant to purchase this LNG, so all gas from the plant went to two floating LNG storage facilities in the Murmansk region and on the Kamchatka Peninsula—Saam PGS and Koryak PGS.
These are essentially two large gas storage vessels built in South Korea. They were handed over to Novatek before the sanctions were implemented. The LNG was stored there, and gas had to be gradually released. Despite the low temperatures maintained by the LNG carrier, the gas inevitably warms up, expands, and is released into the atmosphere. Therefore, some volume of LNG has been permanently lost," explains Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund (FNES).
By sending LNG to the storage facilities, Novatek also demonstrated to potential buyers that the plant was operational, the gas was available, and that they could come and take advantage of a super advantageous offer.
The fact that four LNG carriers discharged sanctioned LNG at the Chinese terminal indicates that a specific company in China received the signal to purchase this gas. "I believe China has designated the Tishan terminal, which will specialize in receiving Russian LNG. It is likely that in the near future, this terminal will come under U.S. and possibly EU sanctions, but it will continue to buy Russian LNG nonetheless. This is akin to the scenario with the shadow fleet, where tanker owners understand they will end up on the U.S. blacklist but still profit from transporting Russian oil," says Yushkov.
However, the capacity of this terminal is limited to only 6 million tons of LNG per year, whereas "Arctic LNG 2" already has two phases, each designed to supply 6.6 million tons of LNG annually. Thus, either China will need to expand its terminal's capacity, or it is planning to purchase exactly that volume.
It is likely that the export capacity of LNG from the "Arctic LNG 2" plant is restricted by ice conditions and the lack of a sufficient number of high ice-class vessels. Novatek has only one LNG tanker, "Christophe de Margerie," which belongs to the Arc7 ice class. This vessel was built for the "Yamal LNG" project, but as it ended up on the U.S. SDN list, it can now only be utilized by another similarly problematic LNG plant. During the winter, LNG shipments from "Arctic LNG 2" can only be carried out by vessels of this class, but one is clearly not enough. Yushkov notes that a possible route for winter LNG deliveries could be through the Ob Bay using lower-class Arc4 gas carriers, transferring to a conventional tanker in the Murmansk region, and then passing through Europe and the Suez Canal to China. However, this is also only feasible under favorable ice conditions.
Given these constraints, the volume of LNG exports could align with the capacities of the Chinese terminal as long as the project does not acquire additional high ice-class vessels, which are currently being completed at the "Zvezda" shipyard.
Why has China chosen to give the green light to Russian LNG from the sanctioned plant now? Likely, it was pushed by the increasing confrontation with the United States.
"The situation changed under the influence of trade wars. China ceased LNG imports from the U.S., the world's largest LNG producer, in 2025. The risks of gas supply disruptions effectively prompted China to allocate the Tishan terminal in Beihai for gas supplies from 'Arctic LNG 2'. This terminal will likely not be used for other supplies—this will allow China to minimize sanctions risks," says Sergey Tereshkin, CEO of Open Oil Market.
"China understood that it was pointless to turn down a lucrative LNG offer with a discount because the U.S. will continue to exert pressure and restrict supplies. And this confrontation will be easier to manage with Russian LNG, especially at a low price.
Moreover, Beijing itself has, this year, refrained from purchasing American LNG. This was not the case last year," says the FNES expert.
The Russian side likely agreed to a significant discount on this LNG. China may have negotiated long-term supply agreements for sanctioned LNG from Russia at a low price amid Russian-American negotiations and the risks of lifting some restrictions against Russia, Yushkov adds.
Ultimately, Russian LNG aids China in ensuring its energy security, the expert states. That is precisely why China signed a memorandum regarding "Power of Siberia 2," increased supply volumes through "Power of Siberia 1," and the Far East route. "For China, anything coming from the north is much safer than that coming from the south. The Americans can refuse to supply their LNG to China themselves. Besides, two other major LNG suppliers to China are Qatar and Australia. The latter can easily be directed by the U.S. not to supply LNG to China, while Qatari projects involve U.S. investors who will comply with sanctions. Everything coming from the Middle East passes through the Malacca Strait, which the U.S. can block," concludes Yushkov.
Source: VZGLYAD
