US Targets Russia’s LNG Exports in Move to Disrupt Global Energy Markets

The US has taken a direct aim at Russia’s ability to export liquefied natural gas (LNG) for the first time, potentially causing disruptions in global energy markets. European countries have continued to import Russian LNG despite the country’s invasion of Ukraine, which caused an energy crisis. While the US has previously avoided disrupting flows to avoid pressuring its allies dealing with shortages, it recently announced sanctions on Russia’s Arctic LNG 2 project. By targeting the project operator, the US aims to put pressure on non-US companies planning to purchase the flows from Arctic LNG 2.

Sanctions Impact LNG Supplies

This is the first time LNG supplies are directly affected by US sanctions on Russian energy projects. US officials clarified that the goal is to hurt Russia’s ability to profit from selling more fossil fuels without reducing the global supply of energy, which would raise energy prices and benefit Russian President Vladimir Putin. The Arctic LNG 2 project, located on the Gydan Peninsula, is Russia’s third large-scale LNG project and aims to become a leading exporter. However, the US sanctions have created uncertainty as they restrict western buyers from purchasing gas from the project.

Investors Evaluate the Consequences

The Arctic LNG 2 project is led by Russian company Novatek, with other shareholders including TotalEnergies from France and two Chinese state-owned companies. Western-aligned investors have until January 2023 to wind down their investments due to the sanctions. Some investors may apply for exemptions, allowing LNG to flow from the project to western-allied markets. However, the specific details and impact of the sanctions are still being assessed by the companies involved.

Market Impact and Reactions

Market analysts anticipate that the sanctions on Arctic LNG 2 will tighten the global LNG market next year. While France’s finance minister downplayed the risk to European gas supplies, Japan’s industry minister acknowledged that a certain degree of impact to Japan is inevitable. The US has not targeted Russia’s other major LNG projects, Yamal LNG and Sakhalin 2, which continue to ship LNG to Europe and Asia.

Russian LNG Ambitions Challenged

The US sanctions on Arctic LNG 2 will hinder Russia’s longer-term ambition to increase LNG supplies and compete with market leaders like the US and Qatar. Russia’s exclusion from various parts of the financial system and global economy makes achieving these ambitions difficult.