Moscow Potentially Building New Shadow Fleet for LNG Exports

Obscure entities in Dubai, unknown insurers, new entry into the market – multiple indicators point towards Moscow’s creation of a new shadow fleet for liquified natural gas (LNG) following the EU’s latest sanctions on Russian LNG transshipment.

According to a Bloomberg investigation, ownership of at least eight vessels has been transferred to obscure companies in Dubai, UAE citing global shipping database Equasis; moreover, among them were four ice-class vessels that have already received Moscow’s approval to traverse Russia’s Arctic waters this summer.

At least three of them also have their insurers listed as “unknown,” it reported, citing the International Maritime Organization database – a classic trait of shadow fleets used by authoritarian regimes to evade sanctions.

While the publication said it couldn’t trace the vessels directly to Russian entities, they bear all the traits and characteristics of Russia’s shadow fleet.

“In the tight-knit LNG industry, several times smaller than the oil market, it is highly unusual for an unfamiliar name to procure specialized carriers that can cost hundreds of millions of dollars,” read the Bloomberg report.

Questionable vessels and ownership

Four of the vessels – Asya Energy, the Pioneer, New Energy and Mulan – belong to a company unknown to the industry called Nur Global Shipping which reportedly entered the energy sector in 2022. Two of its vessels’ insurers were marked as “unknown.”

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Industry representatives said that payment issues, likely resulting from Western sanctions, caused up to 40% of unfulfilled shipments and led to an increase in prices needed to facilitate them.

The ownership of the recently-built ice-class vessels – North Air, North Mountain, North Sky and North Way – was transferred to a Dubai-based company called White Fox Ship Management with no formal office.

While Russia has been utilizing a shadow fleet to evade the G7 oil sanctions, transporting LNG requires more technically competent crews and more complex technology – which Bloomberg said made them easier to track as they number less than a tenth of the 7,500 oil tankers worldwide.

Evading sanctions

Russia, the fourth largest LNG exporter in the world, is likely racing ahead to find alternative routes for the lucrative gas that continues to fund its war machine in Ukraine following the EU’s 14th sanction package.

In particular, the latest sanctions include a ban on transshipment services of Russian LNG in the EU for third-country deliveries.

Transhipment is a process in which cargo – or LNG in this case – is moved between vessels during its journey to the final destination.

While on-sea LNG transshipment has been far more difficult than oil, Malte Humpert, founder of DC-based think tank Arctic Institute, told Bloomberg that such operations have “been going on at the Kildin anchorage north of Murmansk for years,” referring to the Russian port in the Arctic Circle – which might explain the licenses needed to traverse Russia’s Arctic waters.

Agathe Demarais, a senior fellow at the European Council on Foreign Relations, likens Western sanctions to a game of whack-a-mole regarding the rumors of Russia’s new LNG shadow fleet.

“It is no surprise that Russia is resorting to building an LNG shadow fleet, just like it assembled an oil shadow fleet to circumvent the G7 and EU price cap on Russian oil exports,” said Demarais.

“Moscow’s willingness to assemble shadow fleets serves to illustrate the fact that sanctions are a game of whack-a-mole – once a sanctions circumvention network is up, Western authorities will target it and it will then be replaced by another one in an endless game of cat and mouse.”

As Russia’s move to evade the G7 price cap has proven to be somewhat successful, the West would likely need to step up its game to effectively enforce the sanctions and ensure that they actually have an intended impact on the Russian economy.