TotalEnergies invokes force majeure over Russia’s sanctioned Arctic LNG 2

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TotalEnergies invokes force majeure over Russia’s sanctioned Arctic LNG 2

10:58 CAT | 17 Jan 2024

French energy giant TotalEnergies said Tuesday that it had invoked force majeure in relation to its investment in Russia’s Arctic LNG 2 liquefied natural gas project, after Washington hit it with sanctions last year.

The project, controlled by Russian gas company Novatek and designed to tap into the country’s vast Arctic resources, was seen as a flagship example of Moscow’s deepening cooperation with international energy companies.

But unprecedented Western sanctions in response to Moscow’s full-scale military offensive in Ukraine have forced foreign energy majors to write off billions of dollars in Russian assets and leave the country.

The declaration of force majeure by TotalEnergies, the largest foreign investor in Arctic LNG 2, is the latest example of a Western energy company further retreating from Russia.

TotalEnergies told AFP that it had “initiated the force majeure process in accordance with existing contracts”.

Force majeure is a legal clause that allows companies to absolve themselves of contractual obligations based on factors beyond their control.

“Consequently, no offtake of LNG from Arctic LNG 2 by TotalEnergies is planned in 2024,” the company said.

It added it “will comply with applicable sanctions regimes in accordance with our principles of conduct”.

LNG ambitions

Russia hopes Arctic LNG 2 will allow a tripling of its liquefied natural gas (LNG) output to 100 million tonnes by 2030.

Artic2.r — FILE – A concrete gravity-based structure (GBS) of Arctic LNG 2 joint venture is seen under construction in a dry dock of the LNG Construction center near the settlement of Belokamenka, Murmansk region, Russia July 26, 2022. [File photo: Reuters/Stringer]

Annual output at Arctic LNG 2 is supposed to hit 19.8 million tonnes, making it central to Moscow’s ambitions to challenge the United States, Qatar and Australia on the global LNG market.

It had an estimated cost of $21 billion and is located on the Gydan Peninsula, close to Yamal LNG, another Novatek project that began operating in 2017.

But the project now faces possible delays after the United States targeted it with sanctions last November. Sanctions could deter potential customers as well as shippers and insurers from carrying Arctic LNG 2’s gas.

Novatek is the majority owner with a 60 percent stake, while TotalEnergies, China’s CNPC and CNOOC, and a Japanese consortium each own 10 percent.

TotalEnergies’s overall stake in the project is higher, at 21.5 percent, because of an additional 19.4 percent stake it holds in Novatek itself.

The French company had already written off $4.1 billion worth of its investments in Russia and withdrawn its directors from Novatek’s board.

The other three foreign shareholders have also invoked force majeure, Russia’s Kommersant business paper reported.

Novatek CEO Leonid Mikhelson is a billionaire ally of President Vladimir Putin and one of Russia’s richest men.

Novatek did not reply to an AFP request to comment.

Russian Deputy Prime Minister Alexander Novak said last year that the project would go ahead despite US sanctions.

“The Arctic LNG 2 plant is currently under construction and the first stage has already started operating. We expect the first deliveries in the first quarter of next year,” he said in December.

The European Union has not sanctioned Russia’s LNG industry and has increased imports even as it sanctioned purchases of Russian gas supplied via pipelines.

Source: AFP