Oxygen supply for liquid methane was cut off

The Monocle magazine (No. 25. June 17-23, 2024) published an interview with Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, on the new US sanctions impact on the prospects for Russian LNG projects.

— What is the point of imposing sanctions on future LNG projects for which NOVATEK has not yet made a final investment decision (Murmansk LNG) or even there are no clear implementation outlines (Arctic LNG — 1, Arctic LNG - 3)?

— Sanctions isolate them from foreign participation and, more importantly, make it unlikely to conclude long-term contracts for the supply of LNG from these plants. And long—term contracting (for 15-30 years ahead) in both Russian and global practice is one of the key conditions for making a final investment decision on new liquefaction capacities. Without them, NOVATEK loses the guarantees of demand and assumes all the associated risks of underutilization. The share of short-term (up to four years) and spot sales in international trade is growing every year. In 2023, according to GIIGNL, they reached 35 percent. But still, the business plan of almost all large factories is based on the availability of long-term contracts covering the main volume of production. Qatar also sold 89 percent of its LNG under long-term contracts in 2023.

Sanctions against Arctic LNG-1 and Arctic LNG-3 are, of course, almost a curiosity, given that these projects do not even have clear outlines, but I do not think this is a mistake by the implementor. Rather, it is an indicative gesture of long-term intentions: they say, we will strangle Russian LNG exports not only in the 2020s, but also on the entire visible horizon. This once again exposes the obvious: sanctions against Russian LNG have vanishingly little to do with the Ukrainian conflict, but too much to do with unfair competition in non-market ways.

— At the same time, the key players in the Russian LNG industry - NOVATEK and its "daughter", the operator of the existing plant in Sabetta, Yamal LNG remain outside the list of blocking sanctions of the US Treasury. Why? How big is the risk of sanctioning them?

— The risk is high, I'm afraid it's only a matter of time. There is a tense, near-zero balance in the global LNG market in 2024: supply hardly covers the growing demand. The increase in gas prices in the second quarter is mainly due to this. Therefore, the market, especially the European one, is not ready for a decrease in Yamal exports. The situation will begin to change radically from the first half of 2025, but especially by the beginning of 2026, when new and excessive supply from Qatar, the United States and other countries, including Russia, will pour into the market. Around this time, an embargo on Russian LNG in the EU can be expected and sanctions against Yamal LNG a little earlier or a little later. I don't want to croak, but this follows from the whole logic of the US actions.

— What is the point of imposing sanctions on gas carriers under construction at the Zvezda shipyard for Arctic LNG-2, if both the shipyard itself and Sovcomflot, the future owner of the vessels, are already under sanctions?

— This will make it very difficult for the gas carrier, when it is already put into operation, to legally enter most of the world's ports. In any case, it will make it risky for the receiving party. Such sanctions have already been applied to Russian oil tankers, but there usually the SDN list includes not the vessels themselves (although this also happens), but tanker companies. In this case, the US Treasury, apparently, simply does not understand who will own and manage these gas carriers in the future, and decided to go down to the level of individual vessels. The fact that ships that have not yet been built have fallen under sanctions is, of course, something really new.