China Buys US Sanctioned Russian Arctic LNG

By Rhod Mackenzie

For over a year and a half, Arctic LNG-2 experienced challenges in selling its gas due to sanctions imposed on the project by the US. However, a buyer has  suddenly  emerged, presenting an unexpected development.
It has become evident that China is now willing to purchase gas from Russia, including gas that is subject to sanctions. What are the factors contributing to Beijing's current approach?
The fourth gas carrier carrying Russian LNG from the Arctic LNG 2 project has already been unloaded in China. It should be noted that both the gas carriers and the gas itself are subject to sanctions.
US Imposes Sanctions on the soon to be lauched Arctic 2 LNG Plant
In November 2023, the United States imposed sanctions on a Russian LNG plant that had not yet been launched. In December of that year, the first stage of the Arctic LNG 2 project was initiated, but it proved impossible to sell the gas to third parties. Even the foreign shareholders of the project, who invested in this plant under the contracts to receive the product, did not dare to take the sanctioned gas.
Novatek owns
Novatek owns 60% of Arctic LNG 2, along with France's TotalEnergies, China's CNPC and CNOOC, and Japan Arctic LNG, each with 10% of the shares. Chinese companies collectively hold a 20% stake in the project.

It took more than 18 months, but in the end Arctic LNG-2 found a buyer in China. Furthermore, in June of this year, Novatek successfully initiated the second phase of the project. Each line has the capacity to deliver 6.6 million tons of LNG per year, which, when combined, totals 13.2 million tons.
According to unofficial data from S&P Global, sanctioned Russian LNG is arriving at the Tishan terminal in the port of Beihai in southern China. The initial deliveries were made by the gas carriers Voskhod and Arktik Mulan, with the September deliveries being handled by the sanctioned vessels Buran and Zarya.
Sanctioned Tankers used to deliver LNG
Furthermore, the tanker La Perouse, which was sanctioned by the UK in September 2024, called at Arctic LNG 2 on 27 August, according to S&P Global. This vessel is the first of the newly loaded ships to head west along the Northern Sea Route instead of east.
As of 12 September, La Perouse was heading south to the Sahrawi Arab Democratic Republic.

"Last year, China was reluctant to purchase this LNG, so the gas from the plant was instead directed to two floating LNG storage facilities in the Murmansk region and Kamchatka: Saam UGS and Koryak UGS.

Two large storage vessels built in South Korea

These are essentially two large gas storage vessels built in South Korea. They were transferred to Novatek prior to the imposition of sanctions. The LNG was stored there, and the gas had to be gradually released. Despite the gas carrier maintaining a low temperature, the gas still gradually heats up, expands, and is released into the atmosphere. Consequently, a certain volume of LNG was irretrievably lost," says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund (NESF).

By sending LNG to storage facilities, Novatek also demonstrated to potential buyers that the plant was operating, there was gas, and it was available at a highly competitive price.

Chinese Govt gave the OK to buy sanctioned LNG from Russia
The fact that four gas carriers unloaded sanctioned LNG at a Chinese terminal means that a certain company in China was given the signal to buy this gas. "It is my understanding that China has allocated a separate terminal, Tishan, which will specialise in receiving Russian LNG. It is highly likely that in the near future, the company will fall under US and EU sanctions, yet it will continue to procure Russian LNG. This is similar to the situation with the shadow fleet, where it was understood by tankers that they would be blacklisted by the US, yet they still generate revenue through transporting Russian oil," says Yushkov.

The key issue is that the capacity of this terminal is 6 million tons of LNG per year. By comparison, the capacity of the Arctic LNG-2 project is 6.6 million tons of LNG per year, due to the presence of two stages in the latter. Therefore, China must either expand the capacity of its terminal, or it must purchase the volume in question.
More Icebreakers are needed
The viability of LNG export from the Arctic LNG 2 plant is likely to be constrained by the prevailing ice conditions and the absence of the necessary number of high ice class vessels. Novatek has only the Christophe de Margerie gas tanker, which belongs to the Arc7 ice class, available for the sanctioned project. The construction of this asset was undertaken for the Yamal LNG project. However, due to its inclusion in the US SDN list, its utilisation is now restricted exclusively to the aforementioned toxic LNG plant. During the winter months, deliveries of liquefied natural gas (LNG) from the Arctic LNG 2 project are only possible using vessels of this class. However, the number of vessels available is insufficient to meet demand. Yushkov has noted that it is possible to export LNG in winter through the Gulf of Ob on gas carriers of a lower ice class, Arc4, with transshipment in the Murmansk region to a regular tanker, and then passage through Europe and the Suez Canal to China. However, this is only feasible under optimal ice conditions.

With these restrictions in place, the volume of LNG exports can be matched to the capacity of the Chinese terminal. This will remain the case until the project receives additional high-ice-class vessels, which are currently being completed at the Zvezda shipyard.
Why did China  decide to ignore the US sanctions?
What are the reasons behind China's decision to authorise the import of Russian LNG from a sanctioned plant at this particular time? This was most likely a response to the escalating tensions with the US.
"The situation has changed due to the impact of trade wars. In 2025, China ceased to import LNG from the United States, the world's largest LNG producer. In light of the potential risks associated with gas shortages, China has strategically allocated the Tishan terminal in the Beihai port for gas supplies from the Arctic LNG 2 project. This decision is expected to mitigate sanctions risks and ensure the security of gas supplies for China.

"China has realised that it is futile to reject a favourable offer of LNG at a discount, as the US will continue to exert pressure and exert its dominance. This confrontation will be more manageable with Russian LNG, which is available at a competitive price.

In addition, Beijing has declined to procure American LNG this year. This did not happen last year," says the FNEB expert.

Russia gave China a discount on the LNG
It is highly likely that the Russian side agreed to a substantial discount on this LNG. It is possible that China agreed to long-term supplies of sanctioned LNG from Russia at a favourable price in the context of ongoing Russian-American negotiations and the potential lifting of some restrictions on Russia, Yushkov notes.

In the analysts opinion, Russian LNG plays a crucial role in helping China maintain energy security. As a result of these developments, China signed a memorandum on the Power of Siberia 2, and increased the volume of supplies via the Power of Siberia 1 and the Far East route. "For China, all goods originating from the North are considered significantly safer than those from the South.
The Americans themselves have the option of refusing to supply their LNG to China. In addition to these, Qatar and Australia are the two largest suppliers of LNG to China. The US has the option of halting its supply of LNG to China, and there are American investors in Qatari projects who will comply with the sanctions. All trade from the Middle East passes through the Strait of Malacca, which the US has the ability with its Pacific fleet to close," Yushkov concludes.