Gazprom Delivers LNG to China via Arctic Route for First Time

Gazprom PJSC has announced it had achieved its maiden delivery of liquefied natural gas (LNG) using the Northern Sea Route in the Arctic Ocean.

The cargo was meant for China, which has emerged as a key market for Russian fossil fuels amid sanctions over the war in Ukraine.

"Today, a shipment of liquefied natural gas produced by Gazprom at the Complex near the Portovaya CS [compressor station] was completely unloaded from the Velikiy Novgorod LNG tanker at the Tangshan LNG import terminal in China", Gazprom said in a press release Friday, not disclosing the volume or the value of the transaction.

"This is the first time LNG produced by Gazprom was delivered via the Northern Sea Route. The use of this route significantly reduces the time required for LNG shipments to be delivered to the Asia-Pacific region".

The Arctic shortcut between Europe and Asia allows for faster shipping compared to the traditional routes through the Suez Canal in Egypt or the Cape of Good Hope in South Africa.

State-owned Gazprom's private competitor Novatek PJSC has already been using the Northern Sea Route to deliver gas to China. Novatek completed its first gas delivery to China via the route September 2010. The cargo for state-owned China National Offshore Oil Corp. took 22 days from the Russian port city of Murmansk near the border with Finland to its destination, the port of Ningbo, a city on the eastern coast of the Chinese mainland. The voyage was about half the time it would have taken through the Suez Canal, Novatek said in a news release September 6, 2010.

While Novatek said at the time it needed icebreaking support for its Aframax LNG tanker to make the delivery, its joint venture Yamal LNG JSC has tapped a new class of LNG carriers that double as icebreakers. "Special ARC 7 ice class carriers (by Russian classification standards) have been custom-designed and are being built for the Yamal LNG Project to support year-round navigation without any icebreaker assistance along westbound navigation routes, and during summer navigation season - eastbound via the Northern Sea Route", Yamal LNG says on its website.

TotalEnergies, which has a 20 percent stake in the project primarily held by Novatek at 50.1 percent, says on its website LNG shipping through the route takes 15 days via the Bering Strait, half of what it would take through the Suez Canal.

Gazprom is aiming to increase its gas exports to China. "In the first eight months of 2023, China has increased its gas imports", Alexey Miller, chair of the Gazprom management committee, noted at a company meeting, according to a transcript on the company website August 31. "More than a half of this growth in imports to the Chinese market was covered by Gazprom.

"I would also like to note that we steadily increase the daily capacity of Power of Siberia, the main line of our gas supplies", Miller added, referring to the pipeline supplying Russia's Far East and China.

President Vladimir Putin said March 21 negotiations were closing in on the planned Power of Siberia II gas pipeline to China as he forecasted an increase of at least 3.46 trillion cubic feet (98 billion cubic meters) in gas exports to China by 2030, according to a Kremlin transcript of talks between Putin and Chinese counterpart Xi Jinping during the latter's visit to Russia.

Miller continued, "But the most important thing is that we create new gas transmission routes. I am referring, for instance, to the Far Eastern route".

Gazprom and China National Petroleum Corp. signed last year a "technical agreement" on the gas pipeline, following the signing of a long-term deal for gas supply for China via the route. The technical agreement "outlines the key technical parameters of the gas pipeline's trans-border section, including the submerged crossing under the boundary river Ussuri, as well as the physical and chemical properties of gas to be supplied", Gazprom said in a news release June 16, 2022.

Announcing the signing of the supply deal for the route February 4, 2022, Gazprom said, "As soon as the project reaches its full capacity, the amount of Russian pipeline gas supplies to China is going to grow by 10 billion cubic meters [353.15 billion cubic feet], totaling 48 billion cubic meters [1.7 trillion cubic feet] per year (including deliveries via the Power of Siberia gas trunkline)".

Miller said in the meeting, "Therefore, Gazprom will increase its gas supplies to China. And we know that Gazprom's gas is highly competitive in the Chinese market".

The World Bank earlier reported the absorption of Russia's losses in energy export to Europe by the likes of China and India would help keep its economic contraction at 0.2 percent this year from an estimated 2.1 percent 2022.

“Clear signs of trade diversion emerged following the invasion, with the value of Russian fuel exports to the EU declining by over 40 percent last year, while exports to India and China increased”, the United Nations lender said in its outlook report for 2023 and 2024 published June 6.

Traditionally the top destination for Russian energy, the European Union accounted for eight percent of Russia’s mineral fuels exports in December 2022, having consistently fallen since March 2022, when the region comprised 17.4 percent of the total. The region’s intake March 2022, the month after the invasion, was its highest in the January 2019-March 2023 data the World Bank presented in the report. The 27-member bloc’s share of imports of Russian mineral fuels stood at 2.2 percent March 2023.

In contrast world number two economy China saw its share of imports of Russian mineral fuels rise to 8.2 percent in March this year from six percent March 2022 and 5.8 percent December 2021. India saw a sharper increase, accounting for five percent of Russian mineral fuel shipments March 2023 from 0.9 percent March 2022 and 0.6 percent December 2021.

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