Russia's plans to boost LNG exports run up against sanctions and tanker shortages

Russia has big ambitions for liquefied natural gas (LNG) exports, with increased shipments intended to replace some of the lost pipeline gas exports. Although the country wants to more than double its share of the global market, the development of further projects is being hampered by various obstacles, including sanctions. The recent declaration of force majeure on LNG deliveries from the Arctic LNG 2 project is further evidence of this.

After a sharp decline in pipeline gas exports in recent years, Russia has increasingly turned its attention to the LNG market. Increasing its liquefied gas export capacity would allow the country to boost gas exports again and increase revenues for the state budget. Russia has ambitious plans in this area, aiming to triple its LNG export capacity by the end of the current decade. This would also allow the country to increase its share of the global market from 8 % to 20 % by the end of the decade.

The development of new LNG export projects in Russia is not easy, however, particularly since the country lost access to Western technology. According to sources contacted by Reuters, sanctions and a shortage of suitable tankers are the main reasons. The difficult situation is also reflected in the declaration of force majeure by Russia's largest LNG exporter, Novatek, on the Arctic LNG 2 project. The United States imposed new sanctions targeting the project about a month ago.

The new export terminal is expected to have three production lines with a combined annual capacity of nearly 20 million tonnes. The first deliveries were due to begin as early as the first quarter of next year. Russia does have its own LNG export technology, which is in operation on the fourth line of the Yamal terminal, but according to Novatek's chief executive, getting it up and running was very complicated. Reuters sources say the market now expects deliveries to begin no earlier than the second quarter.

A shortage of tankers is also hampering exports from the new terminal

In addition to the challenge of building the terminal in Arctic conditions, operating it is also more demanding, including because of the tankers required. The terminal's location, near the existing Yamal LNG terminal, is suitable for exports to both Europe and Asia. For shipments to Asian markets, the Northern Sea Route significantly shortens the journey, but it can freeze over extensively in winter.

According to Novatek, the Russian shipyard Zvezda is expected to build a total of 15 Arc7-class tankers. These tankers are designed to operate in Arctic conditions and should be capable of breaking through ice up to 2 metres thick. A further six tankers were to be supplied by South Korea's Hanwha Ocean, three for the Japanese shipping company Mitsui O.S.K. Lines and three for the Russian group Sovcomflot. However, according to Reuters, this order was cancelled because of sanctions.

According to Reuters, three suitable tankers have so far been built for the Arctic LNG 2 project: Alexei Kosygin, Pyotr Stolypin and Sergei Witte.