CHINA is expected to take delivery of another four gas cargoes from Russia’s heavily sanctioned Arctic LNG 2 plant over the next week, with more to follow.

The shipments follow last week’s landmark first-ever delivery from Moscow’s embattled flagship Arctic gas project, confirming an apparent shift in Beijing’s willingness to accept sanctioned Russian gas.

The deliveries will arrive amid a series of rapidly evolving geopolitical agreements that could potentially reshape global energy flows.

China’s increasingly long-term gas plans with Russia, confirmed on Tuesday with the signing of the long-delayed agreement to build the Power of Siberia 2 pipeline, point to a growing strategic relationship over the next 30 years.

The deal, however, will not offer much immediate respite for the Arctic LNG 2 project, which despite the recent flurry of loadings continues to face an overwhelmingly negative outlook overall for the next few years at least.

The smallest of Russia’s sanctioned shadow fleet* LNG carriers, Arctic Mulan (IMO: 9864837), had loaded from Russia’s Koryak (IMO: 9915105) floating storage unit on Kamchatka peninsula in June, but along with other cargoes loaded from the controversial Arctic plant had previously failed to find a buyer.

Then on August 28, Arctic Mulan discharged in China, at PipeChina’s Beihai LNG Terminal, posing the question: would this prove a one-off, or the start of a steady seasonal flow of Arctic LNG 2 volumes to China via the northern sea route?

Following the Arctic Mulan call, four more sanctioned LNG carriers, all 174,000 cu m Arc4s, have signalled cargo deliveries to China later this week and next week, albeit with ports and buyers still undeclared.

Meanwhile, a sixth sanctioned LNG tanker, La Perouse (IMO: 9849887), arrived at the plant on August 27, loaded LNG and departed on August 30, according to Lloyd’s List Intelligence vessel-tracking data. After a three day wait for ice to clear, it headed north at high speed to round Novaja Semlja and presumably take the long route to Asia via Africa.

The sudden uptick in loadings supports market speculation that Novatek, the Russian operator of Arctic LNG 2, is planning up to 30 shipments over the next four months, with problems associated with the second train of the project expected to be resolved by the end of November.

“While another million tonnes of already produced Arctic LNG2 gas could possibly reach China on several other ships in the weeks ahead, the financial bottom line for Novatek’s ALNG2 remains deeply negative,” said Eikland Energy managing director Kjell Eikland.

In addition to having two incomplete trains, and an abandoned train 3, Arctic LNG 2’s daily operating conditions are arguably more severe than for any other LNG plant in the world. The recent flurry of ship loadings may follow over a year of stalled operations and sanctions-stymied delays, but the project is nowhere near fully operational.

The current loading rates indicate an effective capacity of only about 3m tonnes per year, far less than the design capacity of 13.2m tonnes for the two trains.

The Siberian northern sea route nominally gives Novatek an annual operating window from the middle of August to December 1, just over three months. But as Eikland points out, even in this “summer period” ice conditions can be unpredictable and several ALNG2 ships have recently been challenged in the East Siberian Sea.

While Novatek is making the most of the shift in Chinese willingness to buy the sanctioned cargoes, most of the ships sailing through the northern sea route will likely have to return west, providing another logistical headache for Novatek.

Incomplete gas turbine and power generating equipment for both trains, due to sanctions, has significantly reduced capacity and complicated operations, making it the most polluting LNG plant in the world, according to Eikland, with more natural gas flared than converted to LNG.

“Commercially it is hard to see a rationale for current ALNG2 LNG sales beyond simply getting rid of aged, lower-value LNG, such as by Arctic Mulan, and to help commissioning of the two ALNG2 trains,” said Eikland. 

“For China, total deliveries from ALNG2 this year will not be critical and probably only represent 1% of LNG demand.”

Longer term, however, China’s interest in Russian supplies may hold significant implications for LNG beyond the Arctic LNG 2 project.

On Tuesday Russia’s Gazprom said it signed a legally binding agreement to build the long-anticipated Power of Siberia 2 gas pipeline to China via Mongolia and would expand deliveries through other routes.

While there is limited detail and no pricing information on the long-delayed deal that has been in discussion for years, the announcement effectively signals a shift in the global gas market that could upend investment decisions on future LNG export terminals, particularly in the US.

Once built, in the early 2030s, the 50bn cu m per year Power of Siberia 2 pipeline will run east from the gasfields that once served Europe.

More immediately, Gazprom has also agreed to raise flows to China via the existing Power of Siberia route by another 6bn cu m a year, according to a Bloomberg report citing comments made to Russian wires by Gazprom chief executive Alexey Miller. Its current annual capacity is 38bn cu m.

Flows via the future Far Eastern link to China, earmarked to start in 2027, will also be above the initially planned 10bn cu m a year, according to the reports.