Chinese firms ‘told to stop work on Russian Arctic LNG 2 project’ due to EU sanctions

At least five Chinese companies will have to stop work on Russia’s Arctic LNG 2 project in northern Siberia by the end of this month, according to an industry publication, due to EU sanctions against Moscow over its invasion of Ukraine.

But one Chinese fabricator told the South China Morning Post that it remained “in close communication with the parties involved”, as the situation was “changing every day”.

“There is no final word on this matter yet,” said a source with Tianjin-based Bomesc Offshore Engineering, which is building 10 modules for the Arctic LNG 2 project.

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Bomesc and other Chinese yards – including Cosco Shipping Heavy Industry, Penglai Jutal Offshore Engineering, Wison Offshore Engineering and Qingdao McDermott Wuchuan – are involved in the fabrication of modules for two of the massive gas project’s three liquefaction trains, or production lines.

The five Chinese companies did not immediately respond to inquiries.

They are building the modules for Technip Energies, the French oil and gas company awarded the engineering, procurement and construction contract for the Novatek project.

But according to a May 10 report by Norway-based energy industry publication Upstream, the Chinese yards received notifications to halt work on modules for the project’s third train by April 29 and its second train by May 27, as a result of the European Union’s sanctions against Russia.

Citing sources, the report also said there were uncertainties over transporting some finished units from China to Russia.

“These two modules for Train 2 are ready for loadout, although there is now some uncertainty as to timing,” one official, who is familiar with Wison’s Arctic LNG 2 schedule, was quoted as saying.

Arnaud Pieton, chief executive of Technip, had earlier warned that sanctions could affect the project.

“The European sanctions now target LNG goods and technology and services more directly, I would say, making the execution of [Arctic LNG 2] more complicated, maybe even highly complicated,” Pieton said during an earnings call last month.

The US and the EU have imposed unprecedented sanctions on Russia – including an export ban on goods and technology relating to its energy industry – in the hope of forcing President Vladimir Putin to end the war in Ukraine. Under a fifth round of sanctions, European companies have a firm deadline of May 27 to conclude any outstanding deliveries.

While Beijing has officially rejected calls to join the Western-led sanctions on Russia, there have been growing concerns in China that its companies – especially those selling goods that rely on Western technologies or US-dollar transactions – may also be targeted by sanctions.

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Putin has been seeking to diversify energy export revenues in recent years, including by selling more gas to Asia. The Arctic LNG 2 project is part of that plan, aiming to liquefy natural gas extracted on the northern coast in Siberia and supply it mainly to East Asian countries like China and Japan.

Arctic LNG 2 has a planned total production capacity of 19.8 million tonnes per year, and the first of its production lines was expected to start operation in 2023.

Privately owned Russian gas producer Novatek in 2019 agreed to sell 10 per cent stakes in the project to two Chinese state-owned companies, CNOOC and CNPC. French oil giant TotalEnergies and a Japanese consortium involving Mitsui & Co each hold 10 per cent stakes.

It is the second Arctic energy megaproject China has been involved with – the Yamal LNG project, in which CNPC has a 20 per cent stake, started sending gas to China in 2019.

Novatek said that by December the Arctic LNG 2 project was nearly 60 per cent complete, with about 78 per cent of the first train finished. But last month Novatek chief executive Leonid Mikhelson said its development was “strained” and the company could no longer confirm project timelines.