European engineering contractor Technip Energies has acknowledged that sanctions are affecting the pace of work on Russia’s Arctic LNG 2 project, but the Paris-headquartered company remains committed to fulfilling its obligations as lead contractor on Russia’s newest project for the liquefaction and export of natural gas while remaining in compliance with restrictions.

A battery of new European Union sanctions imposed in April has impeded the delivery of goods and technology related to liquefied natural gas, to Russia, Technip chief executive Arnaud Pieton said during an earnings call on Monday.

He admitted the sanctions, which were imposed in response to Russia’s military action in Ukraine, will “directly impact” the company’s activities in Russia, including the Arctic LNG 2 project.

Technip Energies has stated that it will not pursue any new business opportunities in Russia, but Arctic LNG 2, which is led by Russia’s largest independent gas producer Novatek, remains in place as the company’s single active contract in the country.

However, in anticipation of the escalation of the EU sanctions, the contractor has been “working with clients, partners and suppliers to take appropriate measures” in connection with Arctic LNG 2, Pieton said.

The company still “expects the balance sheet position of the project and contract protections to be sufficient to fulfil contractual obligations” in compliance with sanctions, he added.

Technip Energies leads a joint venture which was contracted in 2019 to build three LNG trains for Arctic LNG 2 in a specialised yard near the Russian port of Murmansk.

The other two partners are Italy’s Saipem and Russia’s Nipigazpererabotka.

Novatek admitted last week that the scheduled launch of the first train of Arctic LNG 2 might have to be pushed back.

Novatek executive chairman Leonid Mikhelson has been quoted by Russian news agency Interfax as saying that “it was hard to confirm the project’s schedule” in the current environment.

He said the project’s first train has reached an 85% completion mark while the figure for the project on the whole is 65%.

In its fourth-quarter 2021 earnings call held in February, Novatek said the first train was 78% complete as of 31 December, with the overall completion ratio at the project running at 59%.

Before his statement last week, Mikhelson had insisted that Arctic LNG 2 will start operations of the first train in 2023, with the second and third trains following in 2024 and 2025.

The Arctic LNG 2 project is expected to deliver almost 20 million tonnes per annum of LNG to international markets once all its trains — housed on floatable concrete gravity-based foundations — are installed near the shore of the Gydan Peninsula in West Siberia.

Pieton said during a conference call this week that "the sanctions are such that it's going to be more difficult to make the project progress as we have done in the first quarter despite the challenges, and it's going to be even more challenging to deliver beyond the second quarter" of this year.

Winding down

One of the leading foreign stakeholders, TotalEnergies, has said that it will wind down oil and gas activities in the country and provide no additional capital for Arctic LNG 2.

The Paris-based company also stopped recording proved reserves for Arctic LNG 2 in its accounts.

The Arctic LNG 2 shareholders are Novatek with 60%, TotalEnergies holding 10%, China’s CNPC and CNOOC with 10% each, as well as Japan Arctic LNG — a consortium involving Mitsui & Co Ltd — also holding 10%.

Asian stakeholders are seen as less willing to withdraw from Russian projects.

In a related move, Japanese distributor Tokyo Gas Co Ltd dismissed suggestions that it could stop buying LNG from Russia’s Sakhalin 2 project in Russia.

"It's difficult to quickly find alternatives for Russian LNG as it accounts for about 10 per cent of our fuel imports," Tokyo Gas chief financial officer Hirofumi Sato told a news conference on Wednesday, Reuters reported.

“The choice not to buy LNG from Sakhalin 2 voluntarily is basically an untenable one, based on the premise of a stable supply,” he said.

Tokyo Gas has said it will spend 2 trillion yen ($16 billion) on cleaner fuels, such as hydrogen, and renewable power.

(The article has been amended to add a comment from Arnaud Pieton on challenges that the contractor may face beyond the second quarter of 2022, and that the company will remain in compliance with current and future sanctions.)

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