Filenews 8 November 2023 - by Ariel Cohen
Vladimir Nekrasov, a prominent member of Russia's energy sector who criticized Putin, had a tragic accident.
About 40 top executives operating in the Russian energy sector have died since the war in Ukraine began. Coincidentally, all of them have expressed scepticism about Moscow's energy strategy, its sources of funding, and the ability to channel financial resources to the Kremlin's military operations.
Before the recent revelations of Le Monde and Der Spiegel, it was thought that behind these deaths was... Vladimir Putin's willingness to purge the opposition and blackmail Russian oligarchs to provide more funds for the war in Ukraine.
Although initial suspicions may still be true, revelations that many French and German companies were working with the Russian state in a "pivot to the Arctic" for energy exports may point to another cause. Many of these energy executives had to lose from Russia's new energy strategy: exports from the hard-to-control Arctic to avoid the consequences of Western sanctions. They, too, may have resisted this transition.
Following sanctions imposed by the European Union on 8 April 2022 targeting the energy sector, exports to Russia of products and technologies used in gas liquefaction were banned. Any technical, financial or logistical assistance was also explicitly prohibited, and companies had one month to comply with the sanctions. Western energy companies have been accused by Le Monde and Der Spiegel of minimizing their financial losses on the main pillars of Russian gas production by shifting their operations to other sectors of the Russian energy sector before pulling out of the Russian market.
Despite mostly complying and bringing a large number of components to Russia before the deadline, Western companies may have procured machinery and equipment for infrastructure projects in the Arctic after the sanctions took effect date from August to October 2022.
How were Western companies able to support Russia's Arctic LNG 2 project despite the imposition of sanctions? The French economy ministry, which is responsible for imposing the sanctions on France, explains that their implementation "depends on a case-by-case basis". The supervision and enforcement of sanctions cannot be fully monitored, and moreover, while sanctions apply at the level of European legislation, there are differences in their application from state to state.
Arguing that the equipment sent for the Arctic LNG 2 project was not vital or that the aid was for infrastructure rather than energy exports, these energy companies concealed their real action.
Arctic LNG 2 is Russia's largest gas export project. It is located on the Gyda Peninsula in northern Siberia, a location previously inaccessible due to Arctic ice (another example of climate change). Its purpose is to liquefy all natural gas from Siberian fields and plans to export EUR 20 million from Siberia. tonnes of LNG per year – equivalent to around €45 billion. cubic meters per year.
With the construction of the new export terminal in the Arctic Circle, Russia is trying to take advantage of the less stringent sanctions regime involving infrastructure, construction and transport to increase energy exports. Imports of dual-use technologies are often linked to military technology and electrical engineering, but can just as easily be transferred to the energy sector.
Essentially, Russia is trying to loosen the grip of sanctions imposed on it over the war in Ukraine. Even its victory on the battlefield depends on this venture. By diversifying liquefied natural gas exports, and with the help of clever legal, regulatory and accounting tricks, Russia will increase its revenues to finance its war pursuits. By 2030, Russia hopes to export a total of 100 million metric tons of liquefied natural gas and lead the global LNG market. Arctic LNG 2 is a fundamental project to realize this strategic vision of the Russians.
Russia's reaction to sanctions is not surprising – it is the expected behaviour of every sanctioned actor, regardless of motivation or scale. What is really worrying is the blind rush of some Western companies to continue doing business with Russia. Short-term gains may make some executives rich, but the end result will be the undermining of their companies and the political predicament of the West.
Although many European states have stopped importing Russian gas via pipelines, some have not stopped buying Russian LNG. In 2022, Belgium, France, the Netherlands and Spain even increased their annual imports of Russian LNG by a third compared to 2021. The European Union refrains from imposing further sanctions on LNG as unanimity is required by all EU member states, a difficult task for Hungary and now Slovakia. Fear of reprisals and electorates give Russia the opportunity to continue with LNG development.
Western sanctions are having a negative impact on Russia, but Moscow's shift to LNG is not easily addressed. To neutralize Russia's biggest geopolitical tool, energy prices must fall, and the West must explore every option to do so. U.S. LNG exports need support from the Biden administration to beat Russian competition. Strategic LNG partners such as Qatar and Australia need investment to supply not only Europe, but also energy-hungry emerging markets such as India.
LNG is a powerful bridge fuel that can reduce the West's energy dependence on hostile foreign powers. However, we must ensure that the bridge is built on a safe and secure foundation and leads to a worthy destination.
