Analysts: New sanctions on Russian LNG will not affect supplies this winter

The US government announced new sanctions last week aimed at limiting Russia’s revenue from energy commodity sales. The sanctions list now also includes the Arctic LNG 2 project, which is intended to increase Russia’s capacity to export liquefied natural gas (LNG). However, any potential complications with the project should not have a significant impact on the global LNG market this winter, as the first liquefaction train is not due to start operating until the first quarter of next year.

The US Treasury Department announced new anti-Russia sanctions last Thursday, which also include the operator of the Russian Arctic LNG 2 project. According to Montel, the department said the sanctions are intended to limit future production of energy commodities in Russia. However, according to Jason Durden, head of the analysis team at NUS Consulting, the new sanctions should have no significant impact on the market this winter.

“My understanding is that only one of the three liquefaction trains is due to be operational during the first quarter, so the impact this winter will be limited,” Durden said.

Once completed, the Arctic LNG 2 project is set to have three liquefaction trains, each with an annual capacity of 6.6 million tonnes of LNG (around 9 billion cubic metres of gas). According to Montel, the first liquefaction train is expected to start operating by the end of this year and reach full capacity during the first quarter of next year. The other two trains are expected to be commissioned in 2024 and 2026, respectively, according to Reuters.

A large share of the gas is likely to go to Europe

According to analysts contacted by Montel, Asian companies hold a number of the contracts for the new export capacity. However, given the terminal’s shorter distance from Europe, a large share of exports is expected to go to European markets.

This could change if the EU were to impose sanctions on Russian LNG. The likely uncertainty over how effective such sanctions would be is presumably why the EU has not done so yet, as Russia could redirect its exports to Asia.

“Looking at price movements, I’d say the market was a little nervous yesterday (because of the new sanctions),” said Marina Tsygankova, lead gas market analyst at LSEG, last Friday.