NovaTEK announced force majeure for the supply of liquefied gas from Arctic LNG-2.

22nd Dec 2023

By Rhod Mackenzie

Russia's NovaTEK, which is leading the Arctic LNG-2 project, has sent force majeure notices to a number of customers, this is preventing it from starting deliveries on time early next year. It is known that China's Shenergy Group and Zheijang Energy, as well as Spain's Repsol, have received such notices, Bloomberg reported.

The reasons are not directly stated, but it is notable that the decision was made shortly after Washington imposed sanctions on Russia's largest LNG project in November, Bloomberg notes. Citing its sources, the agency writes that the American sanctions make the delivery of its LNG impossible, at least for the time being.

Kommersant also reports that the main problems are related to the lack of the required number of LNG tankers, as sanctions make it difficult to charter them. Washington's sanctions against NovaTEK need no explanation: having cut off Europe from Russian pipeline gas, the Americans, who obviously do not need Russian competitors, want to do the same with Russian liquefied gas, the supply of which is growing at a record pace. In November, Moscow shipped 1.75 million tonnes of LNG to Europe. All in all, Russia's LNG exports rose by 9.3% year-on-year to 2.914 million tonnes last autumn.

The Americans have long since tried to put a spoke in the wheels of Arctic LNG-2. So when LPG prices rise, consumers should know who to thank for the higher bills.

NovaTEK planned to commission the first of three technological lines, each with an annual capacity of 6.6 million tonnes, at the end of 2023, and the first tankers of LNG were due to start shipping to customers in early January.
Gas prices in Europe have already risen by 8.3% to €36.29 per MWh (€381 per thousand cubic metres). NovaTEK shares, which had been rising on the Moscow Exchange, ended the day down 4.8%, the most since July.

NovaTEK's Arctic LNG 2 project plays a major role in Russia's plans to more than triple LNG production by the end of this decade, Bloomberg notes. NovaTEK has a 60% stake in the project. The remaining shareholders are French oil and gas giant TotalEnergies SE, China's CNPC and Cnooc, and a consortium of Japanese companies Mitsui & Co. and Jogmec. They all hold 10% of the shares.

The declaration of force majeure does not mean that NovaTEK will definitely not make deliveries to customers, Kommersant notes. Rather, it protects the company from possible claims if deliveries are delayed for some time.
The Global LNG fleet is actively developing: 20 years ago there were fewer than 200 ships of this type in the world, and now there are around 700, Nikita Dontsov, head of the Influence Group, told Kommersant. But this is still not enough and about 600 more tankers will need to be launched in the next 5 years.

Russia has plenty of natural gas and the capacity to liquefy it, but it has virtually no fleet of its own to transport LNG, he notes. Moreover, Russian ships are not insured by international companies against the risk of secondary sanctions, which mainly affects European consumers.

Nikita Dontsov believes that NovaTEK will most likely be able to find a limited number of tankers to organise deliveries to China and neighbouring Asian countries, but that the French Total , which is a shareholder in the Arctic LNG-2 project, will have a very difficult time getting its fuel.