According to British news agency, Novatek Group - Russia's largest liquefied gas producer - is selling liquefied natural gas (LNG) from the Arctic LNG 2 project at a deep discount of 30-40% to Chinese customers .
This is one of the biggest discounts ever recorded for Russian LNG after the $21 billion project was placed on strict sanctions lists by the US and Europe.
The first LNG shipments since December 2023 only appeared at the end of August this year, after months of cargoes floating at sea or having to be put into floating warehouses, costing Novatek millions of dollars more every day.
According to industry sources, the first shipment delivered on August 28 was sold at a discount of $3-4 below the Asian LNG benchmark (about $11/mmBtu). The following shipments, a total of 14 since August, were all accompanied by “shocking” discounts of 30-40%, bringing the value of each shipment down to $28-32 million, much lower than the market price of more than $44 million.
To free up its stranded LNG, Russia has little choice but to dump it on China, which is both opposed to unilateral sanctions and Moscow's largest energy customer.
Utrenneye field - the core resource of the Arctic LNG 2 project developed by Novatek. Photo: TASS
China has approved the purchase of LNG from the Arctic LNG 2 project, despite strong warnings from US President Donald Trump, who is pushing a strategy to squeeze Russia's oil and gas revenues to pressure Moscow to end the conflict in Ukraine.
However, Washington has so far not imposed direct sanctions on Chinese entities involved in purchasing Russian LNG.
Analysts say the US is having to tread carefully: Handling it too harshly could disrupt the fragile trade deal just reached with Beijing, while also reducing the chance of signing more US-China LNG contracts in the future.
In fact, since February, China has stopped importing US LNG because of tariffs in the trade war.
Since August, almost all Russian LNG has been delivered to Beihai Port, a mid-sized facility in southern China.
Notably, PipeChina, the state-owned company that controls the country’s gas infrastructure, has refused to let other companies use the Beihai port, turning it into a “dedicated gateway” for Russian LNG, even though the UK added the port to its sanctions list in October.
As European allies and the US continue to tighten sanctions targeting Russian gas , China is taking advantage of the market gap to increase purchases of cheap LNG.
Russia, on the other hand, accepted a loss to keep cash flow for the Arctic LNG 2 project - which suffered huge losses when partner TotalEnergies withdrew and the Arc7 transport fleet was blocked from purchasing by sanctions.
Experts say this 30-40% discount is unlikely to last, but is currently the optimal solution for Novatek .
