The rise of ‘shadow’ LNG vessels: A new chapter in Russia’s sanctions evasion strategy

 

 

More than two and a half years after Russia’s full-scale invasion of Ukraine, reports have surfaced about the emergence of ‘shadow’ liquefied natural gas (LNG) vessels. Mirroring tactics previously used for oil exports, unknown companies are purchasing and registering old ships in non-sanctioning countries, with their insurance possibly managed by Russian firms.

Recent data reveals a significant increase in LNG vessels re-registered in the United Arab Emirates (UAE) and India. Up to 50 such ships mayexist (in comparison to these numbers, 64 unique vessels shipped Russian LNG globally in 2024), with nine currently identified by the Center for Research on Energy and Clear Air (CREA) as ‘shadow’ vessels.

In early August, satellite images captured what is possibly the first ‘shadow’ tanker, ‘Pioneer’, loading gas from the Western-sanctioned Arctic LNG-2 project. This was soon followed by ‘Asya Energy’. CREA’s data analysis has revealed that the vessel ‘Everest Energy’ — owned by the same company as the aforementioned vessels — is heading north towards the Arctic.

The emergence of these tankers suggests that Russia is preparing for various scenarios: Western sanctions responses, or a possible European Union (EU) embargo on Russian LNG. These actions are part of a potential broader long-term strategy to mitigate the impact of possible new sanctions by registering ships in non-sanctioning countries and operating covertly.

Managing the hidden threat
With the EU’s natural gas consumption declining and a potential ban on Russian LNG imports on the horizon, Asian countries are likely to become key markets for Russian LNG. Consequently, these ‘shadow’ LNG tankers will likely follow the path of ‘shadow’ oil vessels, targeting Asia as the main market for the Arctic LNG-2 plant.

Russia has two options for shipping to Asia: the longer route through the Suez Canal, which takes 63 days to China and 45 days to India, or the shorter Northern Sea Route (NSR), which takes 33 days to China. However, the NSR for non-ice class vessels is limited to warmer months (June to November). It requires specialized Arc-7 ice-class ships or icebreakers during colder months, raising transportation costs.

Of the identified nine ‘shadow’ LNG vessels, five are non-ice-class ships that can only use the NSR during the warmer months. The other four are Arc-4 ice-class ships that can navigate the Arctic with ice up to one meter thick or with the assistance of an icebreaker. It is reasonable to assume that Russian LNG traders will primarily route their shipments through the Suez Canal or around the Cape of Good Hope if the conflict in Yemen persists.

Logistical issues for sanctioned LNG
In a first scenario, assuming that the first production line of the sanctioned Arctic LNG-2 project is operating at full capacity with all nine identified LNG vessels exporting LNG to primary markets in Asia via the Suez Canal, the logistics for transporting this LNG could be as follows:

the first production line (train) of the Arctic LNG-2 plant has an annual output of 83 TWh (Terawatt-hour), therefore
nine ‘shadow’ tankers, with a total maximum capacity of 7.5 TWh per trip (boil off percentage is not excluded), would need to complete approximately 11 voyages to handle this output of 83 TWh.
Given the travel time, these vessels could manage about six voyages per year to China and eight to India. Consequently, the current fleet would fall short of meeting the demands of the Arctic LNG-2 project output. Specifically, the nine vessels would be capable of transporting approximately 53% of the output to China and 72% to India, not accounting for the seasonal limitations of Arctic navigation.

In a second scenario, where ships attempt to export LNG from Arctic LNG-2 to China via the NSR during the Arctic’s warmer season (June to November), the round trip would take 33 days. This means one ship could make no more than six trips to China in six months, transporting about half of the Arctic LNG-2’s total liquefaction capacity. The journey to India via the NSR would take even longer than through the Suez Canal, making this route unprofitable.

However, this scenario raises significant security and regulatory concerns. Non-ice-class LNG tankers are ill-equipped for Arctic navigation even in summer due to floating ice and other hazards as they lack reinforced hulls and potentially do not meet Polar Code standards. Additionally, insurance costs for this route would be prohibitively high. Nonetheless, this option cannot be entirely dismissed, as Russia has previously used aging, unsafe vessels with opaque insurance to transport its commodities, as seen with ‘shadow’ oil tankers.

A more favorable third scenario for maximizing LNG exports to Asia would involve the four Arc-4 class ships and a nuclear icebreakertransporting cargo from Arctic LNG-2 year-round, with the other non-ice-class LNG vessels making year-round voyages via the Suez Canal. In this case, they could transport about 77% of all Arctic LNG-2 shipments. However, the cost of hiring a nuclear icebreaker would increase transportation costs.

At first glance, the existing fleet may seem insufficient to meet even the needs of one Arctic LNG-2 train, but it is essential to be cautious. For Russia to fully meet the maximum Arctic LNG-2 first train demand and transport the output to China, it would need to double the total tonnage from 7.5 TWh per trip to 15 TWh or double the number of ‘shadow’ LNG vessels to 19. In this case, the entire output could be transported to Asia via the Suez Canal. With the use of shadow tankers, this becomes feasible.

Navigating current challenges
Russia uses Arc-7 ice-class ships to transport LNG cargo from the Yamal installation during winter. Although Russia has ordered additional vessels of this class, they have not been delivered due to sanctions. Meanwhile, Russia encountered difficulties in building these vessels domestically. Reports indicate that, by the end of 2024 or into early 2025, at least two Arc-7 LNG carriers are expected to be completed.

One scenario Russia may resort to is ship-to-ship (STS) transfers during the winter months. It would involve using Arc-7 ice-class ships to perform STS transfers in territorial waters. Russia has already conducted such operations in the Kildin Strait near Murmansk, Russia, where cargo is transferred from Arc-7 ships to non-ice-class vessels, typically heading to Asia. According to CREA, 14 such transfers have already occurred near Murmansk this year, indicating that Russia may use Arc-7 ice-class tankers to transfer LNG from the Arctic LNG-2 project.

This scenario only partially solves the problem. STS transfers in the Kildin Strait shorten the journey to Asia by a few days, but more is needed. To mitigate extended transport durations, Russia might optimize logistics by deploying floating storage units (FSUs). As CREA data reveals, one of the ‘shadow’ tankers is serving as an FSU and has been stationed near the Suez Canal for some time. Given Russia’s desire to reduce travel time to Asia, one possible solution is to create a logistical chain where ships arriving from the Arctic transfer their cargo (either partially or entirely) to an FSU, while ships from Asia collect and deliver them to customers. This logistics chain would allow Russia to transport LNG year-round from the Arctic, including the sanctioned Arctic LNG-2 project.

Despite Western sanctions, the Arctic LNG-2 project continues to advance. The first production line is already operational, at least partially, and the second gravity-based platform (GBS) has arrived. This progress demonstrates Russia’s persistence in pursuing the project.

Even more concerning is the commencement of exports from this sanctioned LNG facility. Although initial volumes are modest, they indicate that Russia is preparing to increase LNG exports and attracting buyers, likely due to discounted prices. If these export activities are not curtailed, it is only a matter of time before volumes rise.

Learning from the past
One critical error by Western powers in restricting Russia’s activities has been their delayed and inadequate response to the initial use of ‘shadow’ oil vessels to evade sanctions. By not taking prompt, decisive action, they allowed these ships to continue transporting Russian oil, weakening the effectiveness of the sanctions. CREA data reveals that before the full-scale invasion, old tankers were used for 13% of Russia’s oil transport, but after 2.5 years, this figure has surged to 80% as a means to bypass Western sanctions.

The situation with ‘shadow’ LNG vessels presents a different opportunity. The LNG tankers’ fleet is significantly smaller than oil tankers, making monitoring, tracking, and sanctioning these vessels much more feasible. The limited number of ships involved means that Western authorities have a greater chance to enforce sanctions rigorously and prevent Russia from developing a similar workaround in the LNG sector.

Western countries could impose requirements that Arc-7 ice-class vessels exporting Russian LNG be included on OFAC and EU sanctions lists, denying them access to ports or Western maritime services after any STS operation with ‘shadow’ vessels or those carrying LNG from sanctioned installations. This proposal should also include all ships transporting LNG from sanctioned installations, whether supplier or buyer.

Furthermore, if sanctioned vessels remain active, it is crucial to identify and list the key individuals and entities that persist in their engagement with these vessels. This additional measure would ensure that all parties facilitating the evasion of sanctions are held accountable, thereby strengthening the overall effectiveness of the sanctions regime.

Measures could involve imposing stricter monitoring, increasing the transparency of ship ownership and insurance, and quickly blocking vessels involved in breaching sanctions.

Additionally, proactive coordination between countries could help close loopholes, ensuring the ‘shadow’ LNG fleet does not grow and evade sanctions  like the oil tankers. If this is not done, Ukraine’s allies may lack the leverage to control sanctions evasion. The countries that imposed sanctions should act now before sanctions evasion becomes an uncontrollable norm all while financing Russia’s military.

Methodology and assumptions

‘G7+’ abbreviation  refers to the G7 countries, EU member states, Australia, Norway, and Switzerland that are members of the price cap coalition.
This analysis defines a ‘shadow’ tanker as a vessel that is owned and insured in a non-G7+ country; these vessels often have unknown or dubious insurance and opaque ownership structures.

China and India are examples of ports of call and do not imply that LNG ‘shadow’ vessels are specifically headed to these locations; they were selected solely for calculation purposes and geographical proximity. For round-trip voyages, Arctic LNG-2 was chosen as the departure point, with destination ports being Dahej, India’s largest LNG importing port, and Dapeng, China’s largest LNG importing port. This choice facilitates a precise comparison of distances among various LNG exporters worldwide.

The Kpler freight calculator determines travel days based on an LNG tanker with an average laden speed of 19 knots and a ballast speed of 16 knots. The journey is calculated as a round trip, including one day in port, a conservative estimate since vessels typically spend more than one day in port, potentially extending the voyage duration. Berthing in channels is not included in the calculation of travel days.