Column by Yuri Barsukov on the impact of sanctions on the global LNG market

Sanctions against Arctic LNG 2 not only once again reminded Russian business that global rules of the game no longer exist, but will also make other players in the global gas industry think. In recent years, the LNG market has been actively developing towards greater flexibility: long-term contracts have become less and less popular, the sale of cargo on an FOB basis has become mainstream, and aggregators – large portfolio players like Shell, TotalEnergies, etc. – have begun to play a key role in supplies instead of national companies. It has become commonplace to argue that as volumes grow, the LNG market will become similar to the oil market. However, it should be noted here that the oil market acquired its modern form in the 1990s, when the world began to rapidly globalize after the end of the Cold War. Now the situation in the world is the opposite: the world economy is becoming more fragmented; due to sanctions, countries are actually uniting into informal trading blocs, the interaction between which is becoming increasingly complex.

In this sense, Arctic LNG-2 was also unlucky because the logistics and commercial part of the project was adapted in a rather radical form to the latest trends: a significant part of the gas was planned to be sold FOB at transshipment terminals in Murmansk and Kamchatka, the volume of long-term contracts was reduced in favor of spot sales. Now that the project will have to build its own entire logistics chain, the commercial scheme will also change: gas will probably go to China, since only this market is large enough, and local companies are willing to accept sanctioned cargo at a discount, as was the case with Venezuelan and Iranian oil .

For the global LNG industry, sanctions against Arctic LNG 2 will undoubtedly be a reason to reconsider their perceptions of risks. This is quite a precedent: sanctions were imposed against an LNG plant that was operating without five minutes, with a design capacity of 4% of the global market. While it is fairly clear that the immediate purpose of the restrictions was to clear a market niche for US LNG, the knock-on effect is that every major consumer is now questioning whether they are buying gas from the geopolitically “correct” partner. For example, China received almost 40% of LNG imports from Australia and the United States in 2022 (24 million tons), and more than 50% in 2021 (40 million tons). The most advantageous position may be for “non-aligned” countries, such as India and Turkey, which will be able to obtain resources from both trading blocs – but only if they find a way to circumvent sanctions and at the same time are strong enough to defend their right to trade with those with whomever they see fit.