Russia analyses new US sanctions: key gas projects targeted

A new package of US sanctions, introduced at the end of last week, threatened to disrupt key projects of the Russian gas industry.

Source: The Moscow Times, citing analytical review of the Russian Alfa Bank

The next sanctions package, which covered more than 150 individuals and legal entities and became one of the largest in the current year, included the most important structures related to Gazprom and Novatek – the largest exporters of pipeline gas and liquefied natural gas (LNG) in the Russian Federation.

In particular, the Gazstroyprom holding – the general contractor of Gazprom, responsible for the design, supply and construction of critical gas infrastructure – was on the "black list" of the American Ministry of Finance.

The company, a joint venture between Gazprom and Gazprombank, is the heir to Stroygazmontazh of billionaire Arkady Rotenberg, who built pipelines for the gas monopoly, and in 2019 sold his business to it.

Stroygazmontazh is directly involved in most of Gazprom's projects and unites under one roof all key subcontractors engaged not only in construction but also in drilling, gas transportation and technical equipment.

At the same time, the Gazprom Nedra company, engaged in geophysical research and exploration of gas deposits and involved in the exploitation of active deposits, came under blocking sanctions.

"The inclusion of these companies in the sanctions lists may disrupt the completion dates of current Gazprom capital construction projects and call into question the timely implementation of the group's new projects," Alfa Bank analysts warn.

Together with Gazprom structures, Arctic Energies – the main contractor of Novatek for the construction of the Arctic LNG 2 Plant – was included in the sanctions lists. The US$21 billion project is being implemented on the Gyda Peninsula near Yamal and should produce about 20 million tons of liquefied gas annually after reaching full capacity.

"Arctic Energies is directly involved in constructing the project's critical infrastructure – a gravity-based structure (GBS). And although Novatek assured that their production was largely localised, sanctions may affect the timing of the launch of Arctic-LNG-2", Blokhin, an Alfa Bank analyst, warns.

It is liquefied gas that the Russian authorities are betting on after Gazprom lost a key European market: the State Council's commission on energy proposed building 94 LNG plants by 2035. But the ambitious plans are unlikely to come true: due to sanctions, Russia cannot buy liquefaction plants, reminds Chong Zhi Xin, director of Asian gas markets at S&P.

Background:

• According to the results of the first half of 2023, Gazprom's gas business became unprofitable – for the first time since the pandemic and for the second time in the last 25 years.
• Last week, it became known that a new package of US sanctions against Russia, as well as companies that help the Russian Federation to circumvent sanctions, would be introduced.

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