US sanctions first Chinese offshore shipyard for Russian ties, threatens FPSO module bids

Chinese shipyard Penglai Jutal Offshore Engineering Heavy Industries (PJOE) has become the first Chinese offshore shipyard to be sanctioned by the US over its involvement in Russian oil and gas projects.

Parent company Jutal Offshore Oil Services said that property and property rights of any entity substantially assisting company would be frozen after the US Treasury Department’s Office of Foreign Assets Control added PJOE to its specially designated nationals (SDN) list.

Although Jutal Offshore Oil Services does not have assets or business operations in the US, the company said that the sanctions could negatively impact its business and future prospects.

The sanctions are part of broader efforts to reduce Russia’s oil and gas revenues and were introduced in response to Moscow’s invasion of Ukraine in early 2022. The sanctions target the defence, manufacturing, technology, transportation, and financial services sectors that support Russia’s wartime economy, and most of the new SDNs have been added with secondary sanctions.

The US Treasury’s website indicates that Penglai Jutal’s association with Russia’s Arctic LNG 2 project subjects it to secondary sanctions risks.

PJOE has been instrumental in building and shipping key natural gas liquefaction technology products to the Arctic LNG 2 project operated by Russia’s leading independent gas producer, Novatek.

PJOE is currently vying for various international contracts, including a floating production, storage and offloading vessel for Suriname, and the Canadian Cedar LNG project. However, inclusion on the list of sanctioned companies could affect PJOE’s ability to bid on such international projects.

In mid-2019, PJOE secured a contract exceeding 3 billion yuan (about $413 muillion at current exchange rates) to build six core compressor and generator modules weighing 64,000 tonnes for the initial two production lines at the Arctic LNG 2 project.

This marked PJOE’s second liquefied natural gas venture in the Russian arctic, following a contract for Novatek’s Yamal LNG project, launched in 2014, which included the construction of 105,000 tonnes of LNG modules.

Sanctions led to the suspension of the Arctic LNG 2 project for eight months in 2022. In January 2023, Novatek asked Penglai Jutal to resume work, stipulating that the installed European equipment be replaced with Chinese equivalents.

By early January 2024, PJOE completed two modules and shipped them to Russia via the Audax and Pugnax vessels, according to the Polar and Ocean Portal.

Located on the Gydan Peninsula, the Arctic LNG 2 project is crucial to Russia's ambition of doubling LNG production to 100 million tonnes by the end of the decade. However, US sanctions threaten this goal, with Novatek issuing force majeure notices and foreign partners suspending their involvement.

Jutal Offshore Oil Services said it continues to evaluate the impact of the sanctions and resumed share trading on 14 June 2024.