Mitsui Divulges its Plan to Invest on Russian Arctic LNG 2 Project

The Japanese trading conglomerate Mitsui & Co has disclosed its plans to invest in the operating entity behind Russia's Arctic LNG 2 project. This investment maneuver will be orchestrated via Japan Arctic LNG B.V. (J-Arc), a Netherlands-based entity, majorly held by the Japan Organisation for Metals and Energy Security (JOGMEC) with a 75% share, while the remaining 25% is owned by Mitsui.

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This announcement comes in the wake of the U.S. Department of the Treasury's Office of Foreign Assets Control's revelation on November 2, 2023, that additional sanctions have been placed on Arctic 2, designating it as Specially Designated Nationals. In light of these developments, Mitsui has been reported to assert that they are in the process of evaluating the repercussions of the sanctions on Arctic 2. The company has vowed to take necessary actions that respect the rights and obligations set forth in various agreements, including the shareholder's agreement, to which J-Arc and Mitsui are signatories.

The company has stated its commitment to abide by international laws and sanctions and is prepared to engage with stakeholders, including the Japanese government, to navigate the situation appropriately. Moreover, Mitsui has confirmed that these developments have not led to any adjustments in the previously stated full-year forecast for the fiscal year concluding in March 2024, nor have they influenced their policy regarding shareholder returns.

As of September 30, 2023, Mitsui disclosed the scale of its financial involvement in the Russian LNG endeavor, with the balance of investments and loans related to the Arctic LNG 2 project at approximately 17.2 billion yen ($114.7 million), and outstanding guarantees at 251.7 billion yen ($1.7 billion). After accounting for a provision of 19.9 billion yen ($133 million) for these guarantees, the net balance of investments and loans, and guarantees stands at 249 billion yen ($1.6 billion). The company clarified that this exposure calculation assumes a 100% coverage for specific J-Arc liabilities that overshoot its equity share and is pre-deduction of any potential insurance claims.

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The Arctic LNG 2 project, situated in Gydan, Northern Russia, is undergoing development by OOO Arctic LNG. NOVATEK holds the majority stake in this company, with TotalEnergies, CNPC, CNOOC, and Japan Arctic LNG also having significant interests.

The project's scope includes the development of the Utrenneye onshore oil and gas condensate field and the construction of three LNG trains, each with a capacity of 6.6 million tonnes per annum. Following the final investment decision in September 2019, the estimated total investment for the project is $21.3 billion. The project's goal is to commence LNG production at 19.8 million tonnes per annum by the end of 2023 and to reach full capacity early in 2024.

Present-day sanctions

Mitsui & Co has confirmed it will examine the implications of recent sanctions imposed by the U.S. Treasury Department on the Arctic LNG 2 project. These sanctions have listed Arctic 2 as a Specially Designated National. In compliance with international laws, Mitsui is set to coordinate with stakeholders, including the Japanese government, to determine the necessary steps forward, ensuring adherence to its commitments and obligations under the current agreements.

According to the article by Procurement Resource, Mitsui & Co. is set to invest in Russia's Arctic LNG 2 project through Japan Arctic LNG B.V., with JOGMEC holding a 75% share and Mitsui 25%. This follows new U.S. sanctions on Arctic 2, which Mitsui is assessing in line with international law and its shareholder agreements. No changes to Mitsui's fiscal forecast or shareholder policy have been reported. Its financial exposure in the project is around 17.2 billion yen with guarantees of 251.7 billion yen, considering potential insurance recoveries. The Arctic LNG 2, spearheaded by NOVATEK along with several global players, is aimed at producing 19.8 million tonnes of LNG annually by early 2024, with a total investment of $21.3 billion.