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Dysfunctions Last Updated: Apr 29, 2022 - 1:56:25 PM

New EU sanctions threaten Russia’s LNG expansion plans
By LNG News 28/4/22
Apr 28, 2022 - 12:01:06 PM

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The EU has targeted the export of equipment used for liquefaction in its latest round of sanctions against Russia.

This move will create more difficulties for the ongoing construction of the NOVATEK-led Arctic LNG 2 project and further threatens Russia’s ambitious LNG expansion plans, according to Poten & Partners latest ‘LNG in World Markets’.

These new sanctions, announced on 8th April, are the first that the EU has imposed directly on the LNG/gas sector, although they fall short of limiting imports of gas or LNG from Russia.

Also banned is the entry of Russian-flagged ships at EU ports and all imports of Russian coal.

Key liquefaction and cryogenic equipment is included in the list of banned goods. A list of restricted LNG equipment appears in Annex X of the Official Journal of the European Union alongside restricted technologies and products used for the oil and petrochemical industries.

The new EU sanctions leave equipment and services providers looking at potential exposure and examining whether they can continue to support Arctic LNG 2’s construction, Poten said.

Many of the contractors and service providers involved with this project are European. For example, the engineering, procurement and construction contractors (EPC) are France’s TechnipEnergies, Italy’s Saipem and Russia’s Nipigas, with other providers such as Nuovo Pignone, which is the Italian arm of Baker Hughes, France’s GTT and Germany’s Siemens and Linde.

The sanctions also prohibit technical services but it is unclear if this covers management of EPC contracts or just vendor support.


Train 1 on schedule

However, it is still likely that Train 1 of the three-train Arctic LNG 2 project can be built on schedule because much of the equipment it needs is already in Russia, including Linde heat exchangers. However, sanctions will make it more difficult to complete Train 2 on schedule and is likely to delay Train 3, if they remain in force or are further tightened.

Train 1 is due to come online in 2023, Train 2 in 2024 and Train 3 in 2025. The key to starting up Train 1 next year is to tow the first gravity-based structure (GBS) on which modules will be attached in late August or early September this year to avoid ice buildup on the journey from the Murmansk manufacturing yard to the project’s site.

On 4th April, the Lloyd’s Market Association’s Joint War Committee, which includes writers of marine hull war business on the London market, added all Russian Federation territorial waters to its war risk areas.

As a result, insurance and reinsurance companies may stop offering cover for voyages to Russia and if they provide it, they will raise premiums making it more expensive to ship equipment.

Finance problems

Even before the fifth round of EU sanctions, the $21.3 bill Arctic LNG 2 faced problems when some of the lenders providing the almost $11 bill in loans were sanctioned by the US, EU or UK.

This potentially exposed European contracting companies working on the project to sanctions. Sanctioned Russian lenders Bank Otkritie and VEB were removed from the project in order to allow the work to continue.

How sanctions will affect the building of the Arc7 icebreaking LNGCs that will serve Arctic LNG 2 was also unclear at the end of last month. VEB was to have provided $9.6 bill of funding to the 15 Arc7s being built by Russia’s Zvezda yard. But critical support and equipment is coming from South Korea’s Samsung Heavy Industries, yet VEB is sanctioned by South Korea.

Delivery of propulsion equipment ordered from Europe and LNG cargo handling equipment contracted from Japan for the Zvezda ships was also under question.

The situation was also uncertain regarding the other six Arc7s of the 21-ship fleet being built by Daewoo Shipbuilding and Marine Engineering (DSME). These are also likely to require European and Japanese equipment. The first three ships are for Russia’s Sovcomflot, while the second batch of three are for MOL and these may not be directly affected by sanctions if not deployed on Russian LNG trades.

Apart from Arctic LNG 2, Russia had planned to add almost 40 mill tonnes per year of capacity through the next phase of expansion from Arctic LNG 1, Russian Far East LNG, and Ust Luga.

Ultimately, the aim was to add yet more projects to eventually take production to 80-140 mill tonnes of LNG by 2035, up from the current level of about 30 mill tonnes per year, which comes from Novatek’s Yamal LNG, Gazprom’s Sakhalin 2 and the smaller Cryogas-Vysotsk facility, Poten said.

Source:Ocnus.net 2022

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