Expect no sanctions relief for Russian LNG

Preventing more Russian LNG entering the fast-growing gas markets of Asia over the coming years will help ensure extra US supply has a home.

WHAT: Trump may offer sanctions relief as part of peace talks with the Kremlin. 

WHY: There are indications his administration will pursue a carrot-and-stick approach to the negotiations. 

WHAT NEXT: While Washington may lift sanctions on Russian oil, it is reluctant to ease restrictions on Russian LNG, as doing so would hurt the interests of US LNG exporters.

The lifting of some US sanctions on Russia is likely to be on the table in anticipated peace talks between Washington, Moscow and Kyiv to end the war in Ukraine. One of chief concerns of the Kremlin will be the removal of restrictions on Russian oil and LNG exports. Yet while the US may well consider easing measures that are affecting Russian crude sales, it has a vested interest in keeping sanctions on Russian LNG in place, and for the long term.

Crippling oil sanctions may be lifted

The Biden administration imposed crippling sanctions against the Russian oil sector on January 10, going much further than ever before to exert economic pressure on the country to force the Kremlin to the negotiating table. The measures included blocking sanctions on Gazprom Neft and Surgutneftegaz, Russia’s third and fourth-largest oil producers that export 1mn barrels per day (bpd) of oil combined, along with designations on 183 shadow fleet oil tankers, used by Russia to circumvent the Western oil price cap. Top Russian ship insurers Ingosstrakh and Alphastrakhovanie were also targeted, to further disrupt the shadow fleet’s exports, and a key general licence that allowed US banks to continue handling Russian energy-related payments will end on March 12. A blanket ban on providing oilfield services to Russia was also introduced. In addition, a Chinese oil terminal that supported a port call by a sanctioned Russian oil tanker was hit with secondary sanctions – a warning shot aimed at deterring other ports from receiving such vessels.

These new sanctions could cut Russian oil exports by 0.5-1.0mn bpd and increase the discount of Urals oil to Brent by $20 per barrel, research scholars at the Center on Global Energy Policy at Columbia University warned in a commentary on January 16. 

Finally, sanctions were also imposed on two operational Russian LNG terminals, the small-sized Portovskaya and Vysotsk facilities in the country’s northwest, marking the first time Washington has targeted current Russian LNG production rather than new projects like Arctic LNG-2.

The introduction of these sanctions were widely perceived as an effort to strengthen US President Donald Trump’s negotiating position on Ukraine ahead of him taking office on January 20. There are indications that the new position will pursue a “carrot-and-stick” approach, offering Russia relief from oil sanctions by issuing general licences to its producers or raising the G7 price cap above $60 per barrel if the Kremlin agrees to peace terms, or threatening to tighten the restrictions further. 

The Trump administration is likely to view either option as acceptable in terms of US interests. Until January, the Biden administration had avoided sanctions that would restrict Russian oil exports too much, fearing this would result in higher fuel prices for US consumers. But the market is now more well-stocked and US inflation is under control, removing this concern. On the other hand, enabling more Russian oil to enter the market would drive global oil prices down further, supporting economic growth and the trade balance of net oil importers like the US.

But LNG sanctions are here to stay

When it comes to sanctions on Russian LNG, however, the US has a clear and strong incentive to keep restrictions in place. In the space of only eight years since launching its first LNG exports, the US has established itself as the world’s biggest exporter of the super-chilled fuel, delivering a record 88.3mn tonnes to the global market in 2024, on the back of the shale gas revolution. The industry has benefited hugely from Russia losing its gas market share in Europe over the past three years, with Europe taking 55% of total US LNG shipments last year.

Trump will be keen to see US LNG growth continue as part of his “Unleashing American energy” agenda, which has also seen him lift the Biden administration’s pause of approvals for LNG exports to non-FTA countries and pledge to ease other restrictions and regulations on the sector. And the potential is certainly there. The US Department of Energy (DoE) estimated last year that, even taking only current project authorisations into account, US LNG supply is on track to double by 2030. 

Preventing more Russian LNG entering the fast-growing gas markets of Asia over the coming years would help ensure that this extra US supply has a home. To do that, all Trump’s administration needs to do is keep in place the sanctions introduced against Arctic LNG-2 and other proposed new LNG projects in Russia in late 2023. Unlike Western sanctions against Russian oil, these restrictions have been very effective.

The first of Arctic LNG-2’s three 6.6mn tonne per year (tpy) trains was commissioned in December 2023, but because of sanctions, has not been able to export a single cargo. Companies in Asia have been too afraid of violating sanctions to purchase the terminal’s gas, and the restrictions have also prevented the delivery of Arc7 LNG carriers, specialised for traversing the Northern Sea Route outside of the summer navigation season. Russia also has difficulty building new LNG facilities, given the sector’s past, heavy reliance on Western technology, equipment and know-how.

Prior to the war, Russia had hoped to almost triple its LNG export capacity to 100mn tpy by the end of this decade. But as long as sanctions remain, this expansion is at a standstill. The US is well-positioned to fill the void that would have been filled by extra Russian LNG over the coming years, and so will be very reluctant to allow more Russian projects to go ahead.