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EU adopts new Russian sanctions that include LNG

As anticipated the EU yesterday June 24th adopted a 14th package of sanctions against Russia that EU foreign ministers claimed would close some loopholes and would hit Russia’s gas exports for the first time. The truth of the matter, however, is likely to be somewhat more mundane.

The new restrictions on gas will ban trans-shipments off EU ports. A clause has also been added that would allow Sweden and Finland to cancel some LNG contracts. The impact of these new restrictions is likely to be muted. The measures stop short of an EU ban on LNG imports, which have risen since the start of the war. Gas market experts have assessed that the measure was unlikely to have a great impact as Europe still buys Russian gas itself. Trans-shipments to Asia via EU ports represent only around 10% of total Russian LNG exports.

The sanctions will also only take effect after a nine-month transition period.

The package prohibits new investments and services to complete LNG projects under construction in Russia.

An EU official was less bullish than the EU foreign ministers. He told Reuters that the impact was likely to be in the millions of euros rather than billions.

Some central European countries still receive pipeline gas from Russia via Ukraine.

The new package creates more responsibility and penalties at member state level for those found flouting the regulations. It adds 116 entities and individuals to the sanctions list, bringing the total to more than 2,200.

The EC had hoped to oblige subsidiaries of EU companies in third countries to prohibit the re-export of certain goods to Russia, including those with a dual-use for military purposes, as well as ammunition and firearms. This was “postponed” at Germany’s behest so that further analysis could take place on its impact. The clause may be added later pending an impact assessment, diplomats said.

Package 14 also aims to crack down on the so-called shadow fleet. It will do this by creating a framework to add ships to the list of sanctions. Vessels could be designated for instances including the “transport of military equipment for Russia, the transport of stolen Ukrainian grain and…the transport of LNG components or trans-shipments of LNG,” the EU ministers’ statement said. Diplomats said 27 ships- mostly tankers – would be listed initially, with more to be added later.

The EU has also sanctioned Russia’s state-owned shipping behemoth Sovcomflot and its CEO Igor Vasilyevich Tonkovidov, according to the measures published in the EU’s Official Journal on Monday.

Meanwhile, with Arctic sea ice retreating for the summer months, Russia’s Northern Sea Route is again open for business. Only last week Gazprom Neft dispatched the first crude oil tanker of the year to Asia via the Arctic; now LNG shipments have also resumed.

The LNG tanker Eduard Toll (IMO 9750696) departed Novatek’s Yamal LNG project to Asia on June 21st. AIS does not currently indicate a destination, but the vessel is likely headed to China. In 2023, LNG carriers made 37 deliveries to Asia via the Arctic, with 31 going to China. The reopening of the Arctic shortcut will ease shipping constraints for Novatek, Russia’s largest producer of LNG.

For much of the past year tankers have had to detour around the Cape of Good Hope. Travelling by the NSR can cut journey times to China to less than three weeks, from six via the southern tip of Africa.

Additional volumes are transferred via ship-to-ship operations in Russian waters. These transfers are set to rise in 2024. In 2023 Russia completed 13 STS operations in waters north of Murmansk. Through the first four months of 2024 the Kildin anchorage has already seen a total of 10 transfers.

Russia has already prepared for the EU transshipment ban. Russian authorities have granted a record number of permits for the Northern Sea Route, including eight low ice-class and six conventional LNG carriers. These vessels will be allowed to operate on the route between July 1st and November 15th, depending on sea ice conditions.

However, the MSR remains a “fix” for only part of the year. Russia’s LNG logistics chains will remain stretched during winter months. Recent activity on the second-hand carrier market and the transfer of a number of newbuilds to an entity in Dubai have also led to speculation of Russia potentially looking to create an LNG shadow fleet.

2017-built, Bahamas-flagged, 128,975 gt Eduard Toll is owned by TC LNG Explorer I LLC care of Seapeak Maritime (Glasgow) Ltd of Glasgow, UK.

Source Insurance Marine News, June 25th 2024

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