Russia building new shadow fleet for LNG exports to evade sanctions

Russia appears to be establishing a new shadow fleet for its liquified natural gas (LNG) exports, an effort reminiscent of the evasive tactics used to circumvent Western sanctions.

Experts have compared these sanctions to a game of whack-a-mole due to their ongoing attempts to counter Russia's evasive manoeuvres, according to Ukrainian media.

Signs of Moscow's intentions have emerged through various indicators, including ownership transfers of at least eight vessels to obscure companies in Dubai, UAE. This information was obtained from a Bloomberg investigation that referenced the global shipping database Equasis. Among these vessels, four ice-class ships have already received Moscow’s approval to navigate Russia’s Arctic waters this summer. The insurance status of at least three vessels is listed as "unknown," a typical characteristic of shadow fleets used by authoritarian regimes to evade sanctions.

While Bloomberg couldn't directly trace these vessels to Russian entities, the ships exhibit all the hallmarks of a Russian shadow fleet. The LNG industry, being much smaller than the oil market, typically doesn't see unfamiliar names acquiring specialized carriers that cost hundreds of millions of dollars.

Four vessels, namely Asya Energy, the Pioneer, New Energy, and Mulan, are owned by Nur Global Shipping, a company that entered the energy sector in 2022 and has two vessels with "unknown" insurers. Another Dubai-based company, White Fox Ship Management, with no formal office, has taken ownership of recently built ice-class vessels North Air, North Mountain, North Sky, and North Way.

Transporting LNG requires more technically skilled crews and complex technology than oil, making it easier to track the vessels, as the LNG fleet is significantly smaller than the global oil tanker fleet. However, Russia has been using a shadow fleet to bypass the G7 oil sanctions.

As the fourth-largest LNG exporter globally, Russia is likely seeking alternative routes for its lucrative gas exports, which continue to fund its war efforts in Ukraine. The EU's 14th sanctions package includes a ban on transshipment services of Russian LNG within the EU for third-country deliveries. Despite the difficulty of on-sea LNG transshipment compared to oil, such operations have been ongoing at Kildin anchorage north of Murmansk for years, according to Malte Humpert, founder of the Arctic Institute.

Agathe Demarais, a senior fellow at the European Council on Foreign Relations, likens the situation to a game of whack-a-mole. She notes that Russia’s assembly of an LNG shadow fleet mirrors its creation of an oil shadow fleet to circumvent G7 and EU price caps on Russian oil exports. The endless cycle of sanctions circumvention and enforcement illustrates the ongoing challenge for Western authorities to effectively impact the Russian economy through sanctions.

To ensure that sanctions achieve their intended impact, the West may need to enhance its enforcement strategies, given Russia’s relative success in evading the G7 price cap.