A step forward, not the finish line
The first train for the ALNG2 project started producing LNG today at 10:30 local time.
While producing the first LNG drop is a significant achievement for any liquefaction project, it is important to note that this is not the same as loading the first cargo. Several additional steps, including further testing, ramp-up, and ensuring consistent output, must be completed before reaching this crucial project milestone. Technical hiccups are not uncommon at the final stage: one of the LM9000 gas turbines experienced a technical issue during the critical final cooldown phase, causing a slight delay in achieving the first drop.
Limited output and equipment uncertainties
Train 1 currently operates with only four of the required seven LM9000 gas turbines, significantly restricting its production capacity. Additionally, the planned Chinese gas turbines intended for onshore power generation have not been installed yet, casting doubt on the project’s timeline and ultimate output potential.
The concrete gravity-based structure (GBS), with the train installed on top, was pulled out of the Belokamenka yard by 14 tugs under the watchful eye of President Vladimir Putin in July, who attended personally, underscoring the importance of the project and wide-scale support the government extended to Novatek in its maiden project, Yamal LNG, and now Arctic LNG 2.
Once Train 1 is operational, the focus will shift towards resolving the equipment shortfall, potentially installing the planned Chinese gas turbines, and optimizing production for consistent output. Only then can the project progress towards its next major milestone: reaching T1 projected capacity and completing the construction of the second train.
New sanctions
The US has targeted the facility with the explicit goal of shutting down the project. As part of congressional testimony, US officials said their aim is to “systematically reduce Russia’s future energy revenue.” It is unclear if or to what degree existing European and Japanese partners in the project will comply with the new sanctions. Novatek has a 60% stake in Arctic LNG 2, with the remaining shareholders comprising France’s TotalEnergies (10%), China’s CNPC (10%), China’s CNOOC (10%) and a consortium of Japan’s Mitsui and Jogmec – called Japan Arctic LNG – with the final 10% stake.
In September, the US had already imposed sanctions on two vessels intended for use as transshipment terminals for LNG shipments from the project. Industry experts anticipated that this move would lead to shipping congestion for many market participants, particularly Asian companies.
ALNG 2 has yet to sell a large portion of its capacity
Industry insiders, including traders and legal experts, foresaw a scenario in which Arctic LNG 2 might be compelled to place more shipments on the spot market, potentially involving trading intermediaries. This could result in cargoes reaching markets that have been evading oil sanctions. Despite a significant decline in Russian pipeline gas deliveries, shipments of Russian LNG to the European Union have remained strong since the invasion of Ukraine in February 2022.
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