NOVATEK notified customers of force majeure for the supply of liquefied gas from the Arctic LNG-2 project

NOVATEK sent customers a notice of force majeure regarding future supplies of liquefied gas from the Arctic LNG-2 project, which was a consequence of US sanctions imposed in early November. We are talking about the volumes that NOVATEK itself sells. According to Reuters, the Chinese companies Shenergy Group and Zheijang Energy, as well as the Spanish Repsol, received notifications. The main problems are related to the lack of the required number of LNG tankers, since sanctions make them difficult to charter. The first Arctic LNG-2 line is successfully commissioning, and commercial shipments can start early next year.

NOVATEK sent customers a notice of force majeure for LNG supplies from the Arctic LNG-2 project, it reported Reuters with reference to sources. NOVATEK did not comment on this information. According to the agency, such gas buyers as the Chinese companies Shenergy Group and Zheijang Energy, as well as the Spanish Repsol, received notifications.

NOVATEK owns 60% in Arctic LNG-2, the remaining shareholders – French TotalEnergies, Chinese CNPC and CNOOC, as well as a consortium of Japanese Mitsui and JOGMEC – each have 10%. Each shareholder of the project receives a volume of LNG in proportion to its share, that is, NOVATEK has 12 million tons per year, and foreign shareholders have 2 million tons per year.

In this case, we are talking about force majeure for supplies from the portfolio of NOVATEK itself, which has signed long-term contracts with a number of companies, including the Chinese Shenergy Group and Zheijang Energy, Gunvor, ENN and Glencore, as well as the Spanish Repsol.

Repsol told Reuters it does not have a firm contract to supply LNG and has not received any notice of force majeure. “Kommersant” wrote in 2021 on the agreement between Repsol and NOVATEK for 1 million tons of LNG per year as a firm contract.

The notice of force majeure is a consequence of US sanctions imposed in November against Arctic LNG 2. These are the first US sanctions aimed directly at an LNG export plant from Russia, and the consequences of these measures for the fate of the project are still unclear. The main problem that sanctions create at the moment is the difficulty in organizing the charter of tankers for exporting Arctic LNG-2 products.

The event of force majeure itself does not mean that NOVATEK will definitely not make shipments to customers, but it protects the company from possible claims in the event of a disruption in deliveries.

Arctic LNG-2, costing about $25 billion, provides for the construction of three liquefaction lines of 6.6 million tons per year. The first of them should be launched before the end of the year. The second line is planned to be commissioned in 2024, the third in 2026. On December 21, Arctic LNG-2 launched commissioning work, starting production of the first LNG. Completion of commissioning is expected in the coming weeks, and the start of commercial shipments is scheduled for early 2024.

US Treasury contributed project in the SDN-list, which means that all transactions with Arctic LNG-2 are prohibited, while allowing a special OFAC license to complete transactions necessary for “the alienation, transfer or assistance in the alienation or transfer of debt or assets” until January 31, 2024 . In September, the contractors of the Arctic LNG-2 project, Nova Energies and Green Energy Solutions LLC, registered in the UAE, were also subject to US sanctions. The United States also added to the sanctions list Arctic Transshipment, which operates two floating LNG storage facilities in Murmansk and Kamchatka – Saam UGS and Koryak UGS.

Sergei Kondratyev from the Institute of Energy and Finance believes that with a high probability NOVATEK is ready for the physical launch of the first stage of Arctic LNG-2 and the problem may be that both the project itself and the floating storage facilities where it should be transshipped are now on the sanctions list LNG, which may increase sanctions risks for buyers. “I think that the project will be launched, but due to existing sanctions risks, the company may be forced to sell gas on the spot market at large discounts,” he says.

Tatiana Dyatel