How Russia’s LNG ‘dark fleet’ disguises its activity #NewsMarket

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The tensions in the Middle East have caused oil prices to jump in the past week; on Monday, benchmark Brent crude passed the $80-a-barrel threshold for the first time since August.

But oil isn’t the only commodity that traders are concerned about. The price of Title Transfer Facility, the European benchmark for natural gas, has risen by nearly 23 per cent since mid-September, when Israel began its campaign against Hizbollah.

Prices are rising even though Europe’s gas storage is relatively full ahead of the winter, as traders worry about any disruption to shipments of liquefied natural gas from Qatar.

After halting imports of pipeline gas from Russia after its full-scale invasion of Ukraine, Europe’s dependence on shipments of LNG has grown substantially. LNG currently accounts for roughly a third of the EU’s gas demand and 10 per cent of it comes from Qatar.

As prices rise, traders have started diverting shipments that were bound for Asia to Europe. Bloomberg spotted on Monday that three LNG tankers carrying the fuel from the US changed course last week from China and South Korea to head to Europe.

Meanwhile, in our main piece today, Shotaro Tani looks at one source of LNG that is struggling to find an easy route to market.

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Spoofing and fake transfers: how Russia’s LNG ‘dark fleet’ operates

Russia’s “dark fleet” of tankers for carrying liquefied natural gas has picked up activity in recent months, highlighting the country’s resolve to get the super-chilled fuel to market in defiance of western sanctions.

Since early August, eight shipments are suspected to have been made from Arctic LNG 2, a flagship project crucial to raising Russia’s presence in the sector, despite western sanctions on both the project and vessels carrying the fuel produced at the facility.

The western sanctions have so far proven effective in deterring potential buyers; the shipments have either headed to storage sites, or remain on water as of now. That “absolutely” had resulted in these vessels increasingly engaging in activities to confuse observers as to where the seaborne fuel actually is, said Kjell Eikland, managing director of Oslo-based consultancy Eikland Energy.

One example is the Pioneer, the first vessel to load from Arctic LNG 2. After loading in early August, it made its way to the east Mediterranean, where it was spotted alongside another LNG carrier, Nova Energy (named New Energy at the time). Observers had believed this to be a ship-to-ship transfer operation, moving the Pioneer’s load to New Energy.

But that turned out to be a disguised operation, only brought to light as the Pioneer passed the Suez Canal in late September. The vessel had to report its draft level to the Suez Canal Authority, which revealed that the vessel was still carrying LNG. It has since become the first laden LNG carrier to pass through the Red Sea since January amid continued Houthi attacks. Its reported destination was set to “NOT SUPPORT ISRAEL” as it passed through the area.

Or take the docking of Nova Energy at Saam FSU, a floating storage unit anchored in a bay in the Murmansk region of northern Russia, where two vessels had previously unloaded the fuel from Arctic LNG 2. After its faked ship-to-ship transfer with Pioneer, Nova Energy made its way back to the Russian arctic, where it was seen docking with the storage unit in late September.

The vessel, however, seems to have faked a load there, and was recently seen back at Arctic LNG 2, where it is believed to have taken the fuel again.

“Concerted attempts at faking ship-to-ship transfers show that Arctic LNG 2 is going to great lengths to obfuscate where its production is going,” said Tom Marzec-Manser, head of gas analytics at consultancy ICIS.

“As these vessels conduct these activities it will become harder to ascertain where these ships loaded and unloaded,” he said. “These manoeuvres are likely as much about creating doubt, as rendering an alternate reality.”

Spotting dark fleet activities in the LNG space is easier than compared to oil tankers. Since the number of vessels in operation are much smaller, whenever an LNG carrier engages in suspicious activities, analysts, traders and ship brokers are likely to notice.

Alongside the tracking of transponder signals, satellite imagery has also proven useful to ascertain what is happening.

But knowing what is happening with 100 per cent certainty is impossible. One reason is that satellite imagery is not perfect; images can be obscured by clouds, or may simply be missing for a relevant time period.

Even if you have the imagery, it “cannot say for sure if and how much LNG was transferred between the vessels”, said Gillian Boccara, director of gas and LNG at Kpler, a ship tracking group. “In addition, vessels declare draft info infrequently and on a voluntary basis, which decreases the reliability of this piece of data.”

In other words, the chances of someone being able to discreetly import Arctic LNG 2 cargo — funding Russia’s wartime economy in the process — cannot be completely ruled out.

This “has become a dynamic game”, said Eikland. “We have probably not seen the end of spoofing, diversions and creative cloaking yet.” (Shotaro Tani)

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.