Transport of LNG Modules to Russia Continues, Calling Effectiveness of EU Sanctions Into Question

A year and a half into the Western sanctions regime against Russia it is becoming clear that initial expectations regarding their impact on the country’s Arctic LNG 2 project were exaggerated.

In contrast to widespread reporting throughout 2022 that companies would no longer transport key prefabricated modules for Novatek’s Arctic LNG 2 from China to Russia, their deliveries continue.

Dutch Red Box Group, owner and operator of two ice-capable heavy lift carriers, Audax and Pugnax, has completed several shipments during 2022 and 2023, a HNN analysis of shipping records shows.

Pugnax loaded modules at a construction yard north of Shanghai two weeks ago and entered the Northern Sea Route (NSR) with destination of Novatek’s Belokamenka yard last week. Meanwhile, Audax completed a recent delivery and is returning to Asia via the NSR.

Prohibits supply of LNG technology

The EU’s 5th sanction package passed in April 2022 sets forth broad prohibitions for the transfer of technology for liquefaction of natural gas (LNG), including the “supply, transfer, or export, directly or indirectly, goods and technologies suited for use in the […] liquefaction of natural gas.”

When sanctions took effect experts highlighted how Russia relied on a fleet of Western heavy-lift carriers to transport its large prefabricated modules from yards across China to the construction yard near Murmansk.

As a result of the sanctions package, industry reporting throughout 2022 indicated that sanctions would impact transport charters for modules as “Western heavy-lift shipping companies start[ed] to terminate contracts to transport modules.”

In-depth studies on the impact of sanctions on Russia’s Arctic energy projects similarly stated that “contracted shipping services by Western countries [would] stop for future projects.”

EU companies remain involved

According to Red Box Energy Services’ website, owner and operator of the two vessels, the company is headquartered in Rotterdam, Netherlands, although it also maintains offices in Singapore.

“The Red Box Energy Services’ website explicitly mentions the company is headquartered in Rotterdam… as such, the company is legally European and thus could be easily targeted by EU sanctions,” confirms Frédéric Lasserre, professor of political geography and geo-economics at Laval University whose research focuses on strategic issues of water management and law of the sea issues.

Neither Rex Box nor the Dutch government responded to inquiries how a Netherlands-based company may continue transporting LNG modules under the existing sanctions regime.

Shipping records show that Protection & Indemnity (P&I) insurance for the two vessels is provided by The Ship owners’ Mutual P&I Association (Luxembourg), a mutual insurance association, further highlighting how European companies continue to, at least indirectly, provide services which aid in the further development of Russian LNG resources.

LNG tankers carrrying Russia gas also received services and exchanged crews in Norwegian waters earlier this year.

Possible loopholes in the sanctions

Red Box may be using its own interpretation of the sanctions, which does not explicitly talk about the ‘transport’ of LNG technology.

“The sanctions [could] merely apply to the producer/reseller of the technology and do not target the transportation service. It could appear that this is Red Box’s interpretation,” elaborates Lasserrre.

The EU may also have elected to not enforce this aspect of sanctions having kept it sufficiently vague.

“One reason for that could be that the EU never wanted to halt Russian gas production. We should recall after all that it was Moscow, not the EU, that turned the taps off for pipeline gas from Russia to the EU, triggering a frenzy of LNG purchases notably from Russia, even more so from Norway, Qatar and the US. Talks of enacting a Russian LNG import ban in Spring 2023 never materialized,” concludes Lasserre.

Red Box Energy Services isn’t the only Western company transporting modules prior to the war, but it is the only one left offering its services to aid in the completion of Arctic LNG 2.

In addition to Red Box, Norwegian GPO Heavylift also provided shipping services to Novatek in the past. Its semi-submersible GPO Grace, one of the most advanced in the world, delivered a 50,000 tons module across the Arctic in 2021.

In contrast to the Dutch operator, the company appears to not have transported modules from China for Novatek since the full-scale invasion of Ukraine.

As with other aspects of the development of Arctic LNG 2, Russia relies on its expanding energy partnership with China. A Chinese-owned heavy lift carrier, Fan Zhou 10, is sailing approximately a week ahead of Pugnax also carrying modules bound for the yard near Murmansk.