Arctic LNG 2 and its Dark fleet – A review of latest events and outlook as of Sep. 5, 2024

The scene and the story

On July 22, 2024, the Dark LNG fleet carrier Pioneer began spoofing its position in the Barents Sea, displaying an unlikely zig-zagging AIS track within an oval. Despite no satellite evidence of the ship in that area, it was found docked at the Arctic LNG 2 (ALNG2) GBS1 unit at Utrenniye, Siberia by satellite imagery on August 1. Pioneer resumed proper AIS transmissions upon returning to the Norwegian Economic Zone, continued them while transiting to the Mediterranean Sea, but then started spoofing again.

Similar AIS spoofing was observed with Dark LNG fleet siblings Asya Energy and Everest Energy as they entered Russian waters of the Barents Sea. Satellite imagery confirmed their docking at ALNG2 GBS1. The 11-day docking intervals suggest a well-coordinated LNG loading schedule with the operator, Novatek, reflecting the 3.3 mtpa available LNG production capacity of GBS1.

Following the imposition of direct sanctions on ALNG2 by the US Treasury’s Office of Foreign Asset Control (OFAC) on November 2, 2023, an Eikland Energy analysis indicated that any attempt to lift LNG from the plant would be closely monitored, making sanction-breaking nearly impossible. Over six weeks, industry observers tracked Dark LNG ship locations, confirming clandestine LNG cargo loadings.

Despite intense industry and media attention, it was surely surprising for Novatek when OFAC, on August 23 (while Everest Energy was still loading), added the three ships, their nominal owner and manager, plus four other suspected ships to the sanction list. Earlier that week, the flag-state for the three ships, Palau, initiated an inquiry into AIS rule violations, subsequently leading to a suspension of their registration.

While Pioneer was deep into the Mediterranean, Asya Energy halted its southbound journey and headed north. Everest Energy began transmitting valid AIS in the Ob Bay immediately after departing ALNG2. On Sunday, September 2, it became clear that both ships were headed towards the Murmansk area. Eikland Energy suggested that a cargo transfer to the previously sanctioned and idle giant Saam FSU in Ura-Guba Bay, west of Murmansk, was the only realistic alternative for longer-term LNG storage and Novatek to gain time.

Saam’s storage capacity of 360,000 m³ LNG is sufficient to discharge both Asya Energy and Everest Energy, each with around 130,000 m³ LNG onboard, but not a full third cargo, such as from the similarly sized Pioneer. Instead, off Port Said, satellite imagery from Sunday, September 25, confirmed that Pioneer was side-by-side with the fourth and somewhat larger ship, New Energy, presumably attempting a clandestine, ‘dark’ cargo transfer to this still unsanctioned ship. New Energy had turned off its AIS, while Pioneer was actively spoofing to hide its actual position.

Spooling forward, Pioneer and New Energy resumed valid, unspoofed AIS transmissions a week later, on the morning of September 3, possibly due to being identified by satellite imagery on September 2 and a strategy shift following the imposition of OFAC sanctions and Palau’s deflagging.

At Ura-Guba Bay, the presumed emptied Everest Energy left Saam on September 2. Surprisingly, it set course east towards the Kara Sea, with an ETA corresponding to ALNG2. Asya Energy, anchored in Murmansk since August 26, arrived at Saam to discharge its cargo on September 3.

Intermission; what next? 

Evidence strongly suggests that prospective ALNG2 LNG cargo buyers have been deterred, despite being offered deep discounts. The primary questions now are how Novatek will handle the LNG onboard the New Energy and the Saam FSU, and what the next moves will be for the three sanctioned ships. Clearly, there is no additional storage capacity beyond what the ships themselves can hold.

The Saam FSU is well-insulated and has some reliquefaction capability, allowing for longer-term LNG storage. However, the four Dark LNG ships each have about 0.15% daily boil-off and no reliquefaction capacity, making ship LNG storage a short-term option that requires a reasonable time horizon for delivery to a final port. This could lead to a security and emergency LNG disposal issue if no outlet is available.

Given the significant challenges in disposing of the ALNG2 floating LNG, production at ALNG2 GBS1 should logically cease. While there might be a brief September window for Northern Sailing Route (NSR) transit to China, winter will soon close that opportunity. OFAC is likely to quickly sanction any buyer, complicating sales further. Industry speculation that the Zvezda shipyard near Vladivostok could complete two Arc-7 ice-rated ships for ALNG2 is hindered by the need for sea, gas, and ice trials before service, and these ships would also be directly sanctioned by OFAC.

Having gambled and lost on its attempt to sell and deliver the three cargoes, Novatek’s disposal options are narrowing. As Eikland Energy has repeatedly stated, the best option for Novatek and Russia is to suspend operations at ALNG2 and focus on protecting the more valuable Yamal LNG.

There is undoubtedly pressure from the Kremlin to continue loading LNG cargoes from ALNG2, but at some point, reality must be acknowledged. Stranded LNG in tanks and disappearing buyers would normally force this recognition. Interestingly, even giving away the LNG will not solve the problem. It seems unsustainable to continue loading ships at ALNG2, as the return of Everest Energy to ALNG2 might paradoxically suggest. A practical but speculative explanation for Asya Energy’s return to ALNG2 could be to help empty the tanks of GBS1 as part of an orderly shutdown. 

An alternative, scheming, but short-thinking storyline would be that the Saam STS operations are scams, and that the ships head to Yamal LNG to feign non-sanctioned loadings there.  This scenario would of course not “unsanction” the ships and their owner/manager, and bring significant risks for Yamal LNG as well.  It would in any event fall apart after the second such operation.

Epilogue?

Whether this saga has additional chapters or merely an epilogue remains to be seen. OFAC is likely unwinding the obfuscated financial trails of who ultimately ordered and financed the purchase of the four Dark LNG ships described here in the spring of 2024. Novatek’s challenges have also multiplied with the August 18 arrival of ALNG2 GBS1’s sibling, GBS2, at the Utrenniye site. Satellites and tools such as Eikland Energy iGIS/LNG are ready to track these developments, and any ALNG2 cargo buyer will most likely be identified.