Russia's Arctic LNG 2 cuts Asia spot price; shipping to slow

The current influx of Russia's Arctic LNG 2 cargoes to China in a little over 10 days has cut Asian spot LNG prices, but the delivery is slated to slow as passage through the Northern Sea Route to conventional LNG tankers is set to close in about a month, market sources told Platts.

The Buran -- formerly known as the North Air -- arrived at the Tieshan terminal in the Port of Beihai, southern China, on Sept. 12. It was the fourth sanctioned Russian LNG carrier since the first ship arrived Aug. 28, according to S&P Global Commodities at Sea data.

The influx of Russian LNG cargoes into Beihai since the end of August has helped ease regional supply tightness and exerted downward pressure on Asian spot LNG prices amid China's subdued appetite for spot LNG, market sources said.

"The Chinese market was already well-stocked with pipeline gas, and with more Russian gas coming in, the demand for spot purchases has really dropped," said a Chinese market source. "Usually, the supply security task kicks off in August, but we haven't felt the need to start it yet this year."

Platts, part of S&P Global Energy, assessed Sept. 11 the JKM, the benchmark price for LNG cargoes delivered to Northeast Asia, at $11.571/MMBtu for October.

This reflects a sharp decrease of 57 cents/MMBtu compared to the JKM on Aug. 28, when the first sanctioned Russian LNG carrier, the Arctic Mulan, arrived at the Tieshan terminal.

"With the Arctic LNG 2, and if that continues, prices can really drop faster than people were expecting," an Indian market source said.

Approaching winter

The Iris -- formerly known as the North Sky -- appears to be the fifth sanctioned Russian ship set to arrive at Beihai in the next few days. It was southeast of Hainan Island in the South China Sea at 1200 GMT on Sept. 12, according to CAS.

In June, after the commissioning of the second train, CAS data showed that loadings from the Arctic LNG 2 project had resumed, with the Iris arriving at the site June 26.

Market sources and analysts expect the current pace of Arctic LNG 2 cargo deliveries to slow in the months ahead.

A European market source said that the Arctic LNG 2 has a limited capacity now, adding that from "mid-November, when ice blocks the way, they can't move cargoes out via NSR."

"Among the LNG carriers that have transported Arctic LNG 2 cargo to Asia, only the Arc 7 class vessel Christophe de Margerie will be able to conduct a maximum of two round trips per month in a shuttle service between Murmansk and Kamchatka during the winter season from around mid-October to May," said Daisuke Harada, director general of the Department of Research and Analysis at Japan Organization for Metals and Energy Security.

"During the winter, five LNG carriers currently transporting Arctic LNG 2 cargoes to Asia will load Arctic LNG 2 cargoes in Kamchatka and Murmansk, supplying at a pace of two to three cargoes per month," Harada said.

The Arctic LNG 2's monthly cargo deliveries during winter could be more than halved from the current level.

"Arctic LNG 2 volumes will likely be hampered as Arctic trade routes get more hazardous in winter, and shipments will start to slow," said Eric Yep, principal analyst for First Take Gas at Energy.

"The project's access to Arc7 Ice-class LNG carrier newbuilds has already been cut off by sanctions," he said.

"There is still some uncertainty around a US response on breaching of sanctions and the buyer/s of the Arctic LNG 2 cargoes have still not been publicly identified," Yep added.

Beihai terminal

The US government has issued fresh warnings that engaging in business with Russia's Arctic LNG 2 poses a "significant sanctions risk," a State Department spokesperson told Platts Sept. 10.

Located in the Guangxi Zhuang Autonomous Region in southwestern China, the Beihai LNG terminal has an annual receiving capacity of 6 million mt. It features a dedicated berth capable of accommodating LNG carriers ranging from 80,000 to 266,000 cu m, along with four LNG storage tanks, each with a capacity of 160,000 cu m.

The terminal is currently operated by China's national energy infrastructure company, the National Oil and Gas Pipeline Network Group (PipeChina). According to public business registration information, PipeChina is jointly owned by several state-owned enterprises and organizations, including PetroChina (29.9%), Sinopec (14%) and CNOOC (2.9%).

Western route

Another sanctioned tanker -- the La Perouse -- called at Arctic LNG 2 on Aug. 27, according to CAS. It is the first of the recently loaded ships to have traveled west, rather than east, along the Northern Sea Route.

As of 1218 GMT on Sept. 12, the La Perouse was heading south of the Sahrawi Arab Democratic Republic, according to CAS.

The La Perouse -- formerly called the SCF La Perouse -- was sanctioned by the UK in September 2024.

While it remains unclear about the La Perouse's destination, India market sources said that it is unlikely to be destined to India.

"Don't think volumes from that can come to India. Indian public sector companies would not be able to absorb that [Arctic LNG 2] volume," the India market source said.

A source with a state-owned Indian LNG buyer said: "We have not even been approached with offers for any spot volumes [from Arctic LNG 2]."

The North Sky and several other LNG ships linked to the Arctic LNG 2 project were sanctioned by the US in August 2024 as part of Washington's crackdown on Russian energy exports.

Novatek holds a 60% stake in Arctic LNG 2, alongside France's TotalEnergies, China's CNPC and CNOOC, and Japan Arctic LNG, all of which have 10% stakes.

Japan Arctic LNG BV is a Dutch corporation that is 75% owned by JOGMEC and 25% owned by Mitsui.