Steep Discounts Help Russia Move Stranded Arctic LNG

Russian Novatek, the owner and operator of Arctic LNG and Arctic LNG 2, is offering steep discounts to Chinese buyers of energy commodities to move its gas, Reuters has reported, citing unnamed sources.

According to these sources, the Russian company has slashed prices by between 30% and 40% since August for gas produced at the Arctic LNG 2 facility, which is scheduled for a maximum capacity of 19.8 million tons. Prior to the discounts, it had not sold any cargoes, the sources said.

Arctic LNG 2 began liquefying gas in late 2023, which was the year the Biden administration imposed sanctions on the facility in a bid to pressure Russia’s key energy industry. The European Union has also sanctioned Novatek.

The sanctions have cut off the Russian company’s access to Western funding and shipping insurance, but, like oil exporters, it has found alternatives. So, despite the sanctions, exports of liquefied gas from Arctic LNG 2 began in August 2024 and continued until November, before the weather and, per Bloomberg in October, lack of buyers, put a temporary end to the shipments.

According to Reuters, however, the first cargo that Novatek sold from the Arctic LNG 2 plant only loaded this year, in August, after it started discounting the gas. The discounts put the price tag of the cargoes sold so far at between $28 million and $32 million, much lower than the market price of $44 million and above.

Novatek ships LNG to China via the Northern Sea Route, which significantly reduces the time needed to make the journey from exporter to importer. The drawback is that the Northern Sea Route is only usable for a relatively short period during the Arctic summer. Thanks to the availability of this route, however, Novatek has been shipping LNG steadily to China, boasting record production for August.

By Irina Slav for Oilprice.com

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