Foreign shareholders suspend participation in Russian Arctic LNG 2 project

by Vladimir Soldatkin

MOSCOW (Reuters) – Foreign shareholders in Russia’s Arctic LNG 2 liquefied natural gas (LNG) project have suspended their participation due to sanctions against Moscow, abdicating responsibilities for financing and executing offtake contracts of LNG, the Kommersant daily reported on Monday.

This project is a key element of Russia’s strategy on the global LNG market where it wants to increase its market share from 8% to 20% by 2030.

The United States last month imposed sanctions on the Arctic LNG 2 project, which was expected to start production before the end of this year or early 2024.

France’s TotalEnergies, Chinese state majors CNOOC and China National Petroleum Corp (CNPC), as well as a consortium made up of Japanese companies Mitsui and Co and JOGMEC – which each hold a 10% stake – have declared force majeure concerning their participation in the project, Kommersant reported, citing sources in the Russian government.

The project is controlled by Novatek, Russia’s largest LNG producer with a 60% stake.

Novatek, CNOOC, JOGMEC and Total did not immediately respond to requests for comment. CNPC and Mitsui declined to comment. .

According to the daily, the suspension of participation could lead Arctic LNG 2 to lose its long-term contracts on LNG supply, while Novatek will have to finance the project on its own and sell the gas on the spot market.

Initial investments in the Arctic LNG 2 project amounted to $21 billion. The project has already faced difficulties raising funds following Western sanctions against Russia.

The sanctions also led Novatek to send force majeure notifications to some of its customers regarding future LNG supplies from Arctic LNG 2, industry sources told Reuters last week.

The European Union could also impose restrictions on LNG deliveries from Russia.

A Beijing-based industry official with direct knowledge of the matter told Reuters last week that CNPC and CNOOC had both asked the U.S. government for sanctions exemptions for Arctic LNG 2.

Production should begin at the beginning of 2024 and the first LNG carriers should set sail in the first quarter of the same year, Novatek said.

But industry sources say commercial LNG deliveries are now expected no earlier than the second quarter of 2024.

A force majeure event may be declared when a supplier is unable to deliver to its customers due to circumstances beyond its control. In this case, he must inform the other party and provide them with an explanation.

(Reporting by Lidia Kelly in Melbourne and Vladimir Soldatkin in Moscow, with contributions from Andrew Hayley in Beijing; French version Kate Entringer)