WSJ: Putin's Most Ambitious LNG Project Under Attack

The U.S. is thwarting the Kremlin's plans in the Arctic.

A real confrontation between the United States and the Russian Federation unfolded in the Arctic. Gas production became a stumbling block.

The Wall Street Journal writes that Moscow is building a new huge onshore complex for the production of liquefied natural gas – this is a key project of Vladimir Putin.

The U.S. is imposing sanctions to disrupt Russia's Project Arctic LNG 2. Washington is trying to prevent Moscow from getting the specialized tankers needed to transport gas.

The situation around the LNG market

The Arctic struggle comes at a challenging time for U.S. energy policy, which last year became the largest LNG exporter. The Biden Administration has suspended approval of new LNG exports due to environmental concerns. The move has angered business groups and customers in low-power allied countries such as Japan and Germany, and some believe it will hamper U.S. efforts to limit Russia's profits from natural gas sales.

House Speaker Mike Johnson is pushing for the lifting of the restrictions, possibly linking it to a vote on helping Ukraine in the House. It's worth noting that his home state of Louisiana is home to an alleged LNG export terminal that was affected by Biden's decision.

At the same time, Putin intends to more than triple LNG exports in the coming years. Its purpose: to raise more money to finance the war against Ukraine and compensate for the decline in Russian gas exports through pipelines. According to the Rystad Energy Consulting company, a capacity of about 32 million tons per year is currently being built in addition to the existing 29 million tons.

In December last year, the first of three liquefaction plants, known in the industry as “trains”, was completed at Arctic LNG 2, and production started at the enterprise. This event was perceived by analysts and Russian officials as a victory for Moscow.

Arctic LNG 2 Challenges

However, a few months later, the victory did not look so confident, because it did not receive the vessels needed by Russia for transportation. Hanwha Ocean, a South Korean shipbuilding company, said it cancelled plans to build three vessels for Arctic LNG 2 due to sanctions. Japanese Mitsui O.S.K. Lines shipping company said it would also not provide vessels for Arctic LNG 2, although it had planned to charter three carriers.

Due to a logistical problem, LNG production has been suspended. Russia is trying to build its own aircraft carriers at a shipyard on the Pacific coast but has faced problems created by sanctions. For example, Moscow cannot get membranes for storage facilities manufactured by the French company Gaztransport & Technigaz.

In total, the US has imposed four waves of sanctions against the Russian LNG industry since September. The sanctions include Arctic LNG 2 operators, storage vessels, shipping companies that they believe are seeking to acquire specialized vessels for the project, as well as companies working on a second facility in the Baltic Sea area.

Completion of Phase 2 and Phase 3 of Arctic LNG 2 will be challenging. According to the Rystad, Novatek can complete the construction of the first stage, since it started before the full-scale invasion of Ukraine. The consulting company expects significant delays in the construction of the second and third stages. Maintenance of the project in conditions of limited access to spare parts can also be a difficult task.