Russia’s Novatek Selling Sanctioned LNG At 30-40% Discounts To Attract Chinese Buyers

Russian liquefied natural gas (LNG) producer Novatek has reduced prices for its Arctic LNG 2 cargoes to attract Chinese buyers, sources familiar with the matter told Reuters.

The move, with discounts of 30% to 40% since August, has allowed the $21-billion project to finally secure buyers after months of commercial uncertainty.

The Arctic LNG 2 plant, co-owned by associates of Russian President Vladimir Putin, began production in December 2023 but failed to sell any cargo until August.

The first cargo, delivered on 28 August, was sold at $3 to $4 below the Asian LNG benchmark price of around $11 per mmBtu, according to an industry source.

Since then, 14 cargoes have been sold at steep discounts, costing $28 million to $32 million each, below the market value of over $44 million. The identities of the Chinese buyers have not been disclosed.

The project faced some of the strictest U.S. and European sanctions, imposed to block energy revenues from reaching the Kremlin amid the ongoing war in Ukraine.

French energy partner TotalEnergies exited the project, while two Chinese firms, China National Petroleum Corp and China National Offshore Oil Corporation, retained their 10% stakes.

Sanctions also disrupted Russia’s plans to acquire a fleet of Arc7 ice-class LNG tankers for year-round deliveries. Before August, unsold cargoes were left floating or in storage, costing Novatek millions.

Despite the sanctions, sources said China approved the LNG purchases. Cargoes have been delivered to the Beihai LNG Terminal in southern China, operated by state-owned PipeChina, which has since restricted access to other suppliers, effectively making the terminal dedicated to Russian LNG.

The UK government imposed sanctions on Beihai in October. China’s foreign ministry declined to comment directly but reiterated its opposition to unilateral sanctions and described Russia-China energy cooperation as “normal economic and trade cooperation beneficial to both countries’ people.”

The U.S. has pressured allies to stop importing Russian energy but has not sanctioned Chinese entities involved in Arctic LNG 2 transactions.

Analysts say sanctioning PipeChina could complicate U.S. LNG exports, as China has not imported U.S. LNG since February 2024 due to trade war tariffs.

Reference: Reuters

Source: Maritime Shipping News