Sources say that Novatek, a Russian company, offers deep discounts on LNG sanctioned to Chinese buyers.

Sources familiar with the matter say that Novatek, a Russian producer of liquefied natural gases, has reduced the price of its cargoes between 30% and 40% since August in order to encourage Chinese buyers to buy sanctioned gas produced by its Arctic LNG 2 Project.

The purchase has ended the commercial limbo of the $21 billion project that is subject to the most severe sanctions the U.S., Europe and Russia have imposed against Russia.

Washington wants to stop the flow of oil revenue into Kremlin bank accounts as U.S. president Donald Trump increases pressure on Moscow to end their war in Ukraine. The White House also threatens to take action against countries who continue to purchase Russian energy exports.

But China, which has been a close ally to Russian President Vladimir Putin for many years, is opposed to Western sanctions.

It could be difficult to crack down on Chinese companies that violate them. Washington struck a delicate ceasefire in its trade dispute with Beijing only last month. A senior industry source stated that enforcing these measures could undermine U.S. plans to do its own LNG deals.

DEEP DISCOUNTS DRAW CHINESE BUYERS TO PUTIN'S LINKED PROJECT

Novatek, a company co-owned with some of Putin's closest ally, began producing LNG in the plant as early as December 2023. It failed to sell any cargos until August of this year when it cut prices for Chinese buyers.

According to a source familiar with the transaction, the gas producer sold the first cargo delivered on 28 August at a discount between $3 and $4 from the Asian LNG benchmark price of $11 per mmBtu.

A second source familiarized with the deals stated that Chinese buyers continue to receive steep discounts between 30% and 40% for subsequent deliveries.

This means that cargoes sell for $28 to $32 millions, which is well below the market value of $44 million.

Prices of the cargoes were not previously disclosed. The names of the Chinese firms that purchased them have not been revealed.

Novatek has not responded to a comment request.

WASHINGTON IS NOT ENFORCING THE SANCTIONS IT HAS IMPLIED

Many of the oil and gas produced by Moscow are not directly affected by Western sanctions. China is Moscow's largest buyer of energy exports.

Joe Biden's predecessor, Trump, had imposed sanctions against Arctic LNG 2 and related entities, as well as vessels, shortly after the company began operating in December 2023.

TotalEnergies, the French partner, subsequently pulled out of the project. However, two of China's biggest energy companies - China National Petroleum Corp. and China National Offshore Oil Corporation each retained a 10% stake.

The sanctions have also stymied Russian hopes to acquire a fleet Arc7 ice class tankers for year-round deliveries.

According to traders, until August, Novatek spent millions of dollars on storage units and floating cargoes.

Trump has made the end of the conflict in Ukraine his top foreign policy priority. To pressure Moscow into negotiations, Trump has increased U.S. sanctions against Russian energy. He also urged allies to do so. And he threatened countries that buy Russian exports such as India with steep tariffs.

Washington has so far not taken any action to punish Chinese companies involved in Arctic LNG 2 purchases.

They are pressing their allies not to import Russian LNG or gas. They are not implementing sanctions on Arctic LNG 2," Anne-Sophie Corbeau said, a researcher with Columbia University's Center on Global Energy Policy.

The White House didn't respond to an inquiry asking whether the administration was worried about the LNG purchases, and if any efforts were being made to discourage or stop the transactions.

The two senior sources in the industry said that the Chinese government had approved the purchase. The Chinese business registration portal shows that the Beihai LNG Terminal, in southern China, where the cargoes will be delivered, is operated by the state-owned energy infrastructure giant PipeChina.

The office of the spokesperson for the Foreign Ministry did not comment directly when asked if China gave any guidance on the imports, or if they were concerned that Washington could impose sanctions against PipeChina, who runs the majority of the country's infrastructure in oil and gas. However, they reiterated China’s opposition to unilateral sanction and "long arm jurisdiction".

The spokesperson's office stated that "energy cooperation between China and Russia" is a normal economic and commercial cooperation benefiting both countries.

BEIHAI BECOMES CHINA’S DEDICATED RUSSIAN IMPORT TERMINAL

Beihai was a mid-sized gas terminal that had previously been used to import LNG from various companies and sources, including eight cargoes of U.S. Liquefied Natural Gas in 2024.

A third Chinese source with direct knowledge on the issue said that since August, PipeChina refused to allow other companies to access Beihai. This has effectively turned into a dedicated entry for Russian gas.

In October, the UK government imposed sanctions against Beihai.

PipeChina has not responded to any requests for comment.

Trump has also expressed his desire to sell LNG to China. He has done this repeatedly, integrating American energy exports in trade agreements with partners who are seeking to lower U.S. tariffs.

Western energy executives who sell gas to China said that the United States would have a hard time sanctioning PipeChina because it would also block U.S. sales.

Due to the tariffs that were imposed in the trade war between two of the largest economies, China hasn't imported any U.S. LNG from February.

(source: Reuters)