Further US sanctions target Russia's shadow LNG carriers

The US has imposed sanctions on seven LNG carriers linked to Russia, including vessels that are believed to have recently loaded cargo at a new Arctic export facility. The sanctions target nearly 400 individuals and entities. The move increases pressure on Russia and its efforts to expand LNG trade, S&P Platts reports.

On August 23, a day before Ukraine’s Independence Day, the United States announced new sanctions aimed at increasing pressure on Russia and its allies in the war against Ukraine. The measures focus on disrupting Russia’s LNG trade, particularly through sanctions targeting the shadow fleet of tankers Russia uses to circumvent existing restrictions.

The term shadow fleet refers to vessels with opaque ownership and insurance records that deliberately manipulate or evade GPS tracking systems designed to monitor LNG shipments and transactions. Russian companies are trying to acquire LNG tankers, often through shell companies in third countries, to make up for the shortage of tankers for Novatek’s already sanctioned Arctic LNG 2 project.

The US Treasury and State departments said the new sanctions target nearly 400 individuals and entities in Russia and elsewhere.

The list includes seven LNG carriers: Asya Energy, Everest Energy and Pioneer, flying the flag of Palau; and North Air, North Mountain, North Sky and North Way, operating under the Panamanian flag. Pioneer and Asya Energy were recently acquired by India-based Ocean Speedstar Solutions, which has also been added to the sanctions list.

The latest move underscores how quickly the US is prepared to act. According to satellite images, the vessels Pioneer and Asya Energy loaded their first suspected cargo from the sanctioned Arctic LNG 2 project less than a month ago.

This is a cat-and-mouse game that will drive up the cost of transporting Russian LNG and reduce its price. The sanctions are likely to take these vessels out of service, force them to transfer LNG from ship to ship, and compel Novatek to rely on other vessels, as Chinese, Indian and other buyers will be unwilling to let them access their ports.

However, Ellen Wald, president of Transversal Consulting, said that developing a shadow LNG market could be harder to sustain than the shadow oil market, which has allowed sanctioned Iranian, Venezuelan and Russian oil to continue reaching global markets.

“It is more difficult to falsify or conceal an LNG cargo, because ship-to-ship transfers are not possible in the same way as they are for oil,” Wald said. “Ship-to-ship transfers of oil often result in oil of different origins being mixed, making sanctioned oil untraceable. This is not possible with LNG, so it will be easier to track LNG to its destination and potentially impose sanctions.” 

This effectively limits Russian LNG customers to those willing to take the risk and equipped with LNG regasification facilities. The effort is further complicated by the much smaller pool of participants in international LNG trade compared with oil. Since state-owned entities and established players dominate the Asian LNG buying market, more market participants are likely to be unwilling to take the risk.

The latest sanctions follow a tranche of more than 300 sanctions issued on June 12, aimed at hindering the development of Russia’s strategic energy projects, particularly in LNG and oil.

US sanctions have significantly curtailed the operations of vessels, most of which have stopped operating since being added to the Treasury Department’s list. The sanctions also block the development of Russian LNG projects, including Obsky LNG, Arctic LNG 1-3 and a new project in Murmansk. The European Union has contributed through a ban on transshipping Russian LNG at its terminals. The US is aware of Russia’s attempts to circumvent sanctions through new branches and subsidiaries abroad and is warning foreign regulators about them.

The news prompted a slight rise in European gas prices. However, the increase is also being driven by escalating geopolitical risks amid a deteriorating situation in the Middle East and Europe.