Mysterious Purchases Increase Uncertainties in the LNG Market

Mysterious buyers with suspected connections to Russia have begun acquiring dozens of liquefied natural gas (LNG) ships, suggesting that Moscow is expanding its "dark fleet" of energy tankers. Industry insiders report that a group of previously unknown companies, mostly registered in the United Arab Emirates (UAE), has quickly acquired LNG ships over the past year. This surge in purchases has driven up market prices, especially for older ships. This buying spree is reminiscent of how Moscow built a dark fleet of oil tankers to transport oil globally despite Western sanctions, often using the UAE as a trade hub. Although Russian LNG sales are less affected by Western sanctions than oil, Moscow is preparing for a potential tightening of restrictions. Since the second quarter of 2023, more than 50 LNG ships have changed hands and are now owned by companies based in the UAE, according to Windward, a risk consultancy for shipowners and governments. Such transactions were previously rare. According to the ship tracking group Kpler, this points to a complex network of maritime operations potentially connected to Russian interests. Some of the newly acquired LNG ships are now traveling routes traditionally used for transporting gas from Russia. Kpler noted that one ship loaded LNG from Yamal, Russia's flagship export project, which has not yet been subject to sanctions. LNG has gained significance for the Russian war economy, providing crucial revenue following the loss of pipeline exports to Europe since the invasion of Ukraine in 2022. Neither the EU nor Asia, key markets for Russian LNG, have imposed import bans to avoid disrupting the global gas market. However, the West has begun taking measures to restrict trade. In June, the EU approved restrictions that ban the transfer of Russian LNG from large icebreaking ships to smaller vessels in EU ports, significantly limiting Russia's ability to distribute its gas globally. Russia's large LNG project, Arctic LNG 2, has also been sanctioned by the US, making it increasingly difficult to ship loads from the project. Traders say that more opaque fleets could facilitate trade from projects under sanctions and support Russia's operations in the market. The increased purchasing has driven up prices for older and less efficient LNG ships over 15 years old, according to data from shipbroker SSY, which facilitates the sale of ships between owners. These developments have raised concerns among industry insiders, who are already worried about the rapid increase in older ships in the restricted oil trade. These ships are less likely to be insured against disasters and are significantly more prone to accidents and leaks. SSY director Toby Dunipace stated that the LNG division of his company routinely conducts sanctions checks on new clients, but recent developments have brought these risks "much more into the spotlight." He added that the broker has already had to turn away some potential clients this year, including one last week, due to failed sanctions checks. Sergey Vakulenko from the Carnegie Endowment for International Peace said it is evident that Russia intends to build its LNG dark fleet as pressure on Russian LNG increases. With the expected market stabilization from US and Qatari LNG production, Russian projects like Yamal LNG could fall under sanctions. Vakulenko emphasized, "Russian LNG operators likely think the writing is already on the wall and are preparing. The trade-off is simple: if the sanctions are lifted, they have their own fleet and can use it; if sanctions are imposed, they are not blocked and can continue their trade.