Russia Finds Its First Buyer for Sanctioned LNG

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Russia Finds Its First Buyer for Sanctioned LNG
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For more than a year and a half, 'Arctic LNG-2' could not sell its gas anywhere due to U.S. sanctions against the project. However, a buyer has unexpectedly emerged. It turns out that China is no longer afraid to purchase any gas from Russia, even sanctioned ones. What lies behind Beijing's newfound boldness?

The fourth LNG carrier from the Russian Arctic LNG-2 project has unloaded in China. Both the carriers and the gas are under sanctions. In November 2023, the U.S. imposed sanctions on the new, not yet launched Russian LNG plant. In December of the same year, the first phase of Arctic LNG-2 was commissioned, but they still could not sell gas to anyone. Even foreign shareholders of the project, who had invested in this plant under contracts to eventually receive the product, hesitated to take sanctioned gas.

Novatek owns 60% of the shares of Arctic LNG-2 alongside French TotalEnergies, Chinese CNPC and CNOOC, and Japan Arctic LNG, each with a 10% stake. In total, Chinese companies hold 20% of the project's shares.

And now, after more than a year and a half, 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 can supply 6.6 million tons of LNG per year, totaling 13.2 million tons together.

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 batches were delivered by the LNG carriers Voshod and Arctic Mulan, while September's shipments were made by the sanctioned vessels Buran and Zarya.

Furthermore, according to S&P Global, another tanker, La Perouse, 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 heading west instead of east along the Northern Sea Route. As of September 12, the La Perouse was headed south towards the Saharan Arab Democratic Republic.

"Last year, China was hesitant to buy this LNG, so all the gas from the plant went to two floating LNG storage vessels in the Murmansk region and Kamchatka – Saam UGS and Koryak UGS.

These are essentially two large gas storage vessels built in South Korea, which were handed over to Novatek before the sanctions were imposed. The LNG was stored there, and it had to be gradually vented off. Despite the carrier maintaining low temperatures, the gas eventually warms up, expands, and is vented into the atmosphere. Therefore, some volume of LNG was permanently lost," says Igor Yushkov, an expert from the Financial University under the Government of the Russian Federation and the National Energy Security Fund (FNEB).

By sending LNG to storage, Novatek was also demonstrating to potential buyers that the plant is operational, gas is available, and inviting them to take advantage of a super attractive offer.

The fact that four LNG carriers have unloaded sanctioned LNG at the Chinese terminal indicates that a certain company in China has been signaled to purchase this gas. "I believe that China has allocated the Tishan terminal, which will specialize in receiving Russian LNG. Most likely, in the near future, it will fall under U.S. and even EU sanctions, yet it will continue to buy Russian LNG. This is akin to the case with the shadow fleet, where tanker owners understood they would be blacklisted by the U.S., but they still profit from transporting Russian oil," says Yushkov.

The only limitation is that the terminal's capacity is only 6 million tons of LNG per year, while Arctic LNG-2 already has two phases, each capable of supplying 6.6 million tons of LNG annually. Thus, China will either need to expand its terminal's capacity or plan to purchase exactly that volume.

It is likely that the export capacity of Arctic LNG-2 is constrained by ice conditions and the lack of enough high ice-class vessels. Novatek currently has only one LNG carrier, the Christophe de Margerie, which belongs to the Arc7 ice class. It was built for the Yamal LNG project, but since it has been placed on the U.S. SDN list, it can now only be used for similarly "toxic" LNG projects. During winter, shipments of LNG from Arctic LNG-2 are only feasible with vessels of this class, but one is clearly insufficient. Yushkov notes that there is a possibility of exporting LNG in winter through the Ob Bay using lower ice-class Arc4 carriers, with transfers in the Murmansk region to regular tankers, and then passing through Europe and the Suez Canal to China. However, this is also only possible under favorable ice conditions.

Given these limitations, the volume of LNG exports may synchronize with the capacity of the Chinese terminal until the project acquires additional high ice-class vessels currently being completed at the Zvezda shipyard.

Why did China decide to greenlight the purchase of sanctioned LNG from Russia at this moment? Likely, it was prompted by the intensified confrontation with the U.S.

"The situation has 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 pushed China to allocate the Tishan terminal in Beihai port for supplies from Arctic LNG-2. This terminal will likely not be used for other supplies, which will allow China to minimize sanctions risks," says Sergey Tereshkin, General Director of Open Oil Market.

"China realized that it is pointless to refuse a lucrative LNG offer with a discount because the U.S. will continue to exert pressure. And it will be easier to navigate this confrontation with Russian LNG, especially at a low price.

Moreover, Beijing has this year refrained from purchasing American LNG. This was not the case last year," the FNEB expert adds.

The Russian side likely agreed to a significant discount on this LNG. It is possible that China has negotiated long-term supplies of sanctioned LNG from Russia at low prices amid Russian-American negotiations and risks of alleviating some restrictions against Russia, Yushkov adds.

Ultimately, Russian LNG aids China in ensuring energy security, the expert remarks. This is precisely why China signed a memorandum for the "Power of Siberia-2," increased supply volumes for "Power of Siberia-1," and the Far Eastern route. "For China, everything coming from the North is much safer than what comes from the South. The Americans could themselves refuse to supply their LNG to China. Moreover, the other two largest LNG suppliers to China are Qatar and Australia. The latter can easily be ordered by the U.S. not to supply LNG to China, while there are American investors involved in the Qatari projects that 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

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