Russia-China LNG Cooperation in the Arctic in Light of the Middle East Crisis

Middle East Crises as a Context#

Around a fifth of global LNG flows go through the Strait of Hormuz, and the disruption of energy shipments through this strait, caused by the U.S. and Israel’s unprovoked aggression against Iran on February 28, did make a real mess of global and Asian natural gas markets. Needless to mention, the physical disruption of Qatar’s as well as some other Gulf countries’ gas facilities and infrastructure also caused a shortage of natural gas supply on the energy markets. It made fossil fuel importers look for alternative options to meet the unexpected challenge.

China is the world’s top buyer of LNG with 30% of its total LNG imports met by shipments from Qatar and the UAE (as of 2025). However, in sharp contrast to other LNG importers from the Gulf producers, China has enough domestic, as well as imported pipeline gas and LNG from diversified sources, to meet its current needs. Specifically, the imports from Qatar and the UAE represent only around 6% of China’s overall gas supply, backed by strong domestic gas production and pipeline gas imports from Central Asia and Russia.

Besides Russian pipeline gas, China is also a large buyer of Russia’s Arctic LNG. However, unlike Russia’s other LNG customers, China turned out to be relatively unaffected by the Middle East crises, at least that was the case for the spring period. In March, for instance, China imported record-low levels of LNG compared to previous months. Instead, Chinese companies started reselling record volumes of LNG to foreign entities in South Korea, Japan, Thailand, the Philippines, and India. While in 2025 China resold merely 0.82 million tons of LNG, since the beginning of 2026 till now, China has re-exported a record 1.31 million tons. The Middle East crisis has pushed up spot LNG prices, which made it reasonable for China to sell some excess LNG against the background of seasonally weakened domestic demand due to the end of the winter heating season in China. Chinese traders opted to get some profit from the crises. When dealing with China, it’s always relevant to bear in mind that the key driver of China’s market behavior is profitability.

However, while Chinese traders could use the current crises for gaining short-term benefits, partially thanks to seasonal demand declines and cargoes already en route, the Middle East crisis, regardless of when and how it is resolved, could have a profound impact on China’s long-term energy security calculus.

In the long run, China is interested in ensuring its future supplies of natural gas from abroad and in the construction of national strategic natural gas reserves, which it currently lacks (according to Chinese experts, China has strategic petroleum reserves, but lacks natural gas reserves). China is a large importer of natural gas, with a high degree of dependence on foreign sources. Natural gas plays an increasingly important role in China’s power system; it is crucial for ensuring the security and stability of the power grid. On top of that, the global geopolitical environment is becoming increasingly complex and, according to Chinese estimates, it is likely to deteriorate in the future, with more geopolitical risks on the road. Although due to the long-lasting policy of diversifying energy imports and increasing domestic production, China is well placed amid current energy crises, it still needs to reduce its vulnerability to energy shocks, with ensuring supply security as a top priority. One of the response options is securing alternative gas supplies, including LNG.

Against this background, a greater appetite for Russian Arctic LNG could be expected. Specifically, considering that a significant portion of it is sold at discounted prices, due to the fact that it is under sanctions.

China as a Buyer of Russian Arctic LNG#

To understand the overall picture of Russian LNG production and export capacity and the comparative volume of Russian Arctic LNG imported by China, it is important to consider the export flows from all Russian large- and medium-tonnage LNG projects, not just those in the Russian Arctic.

In terms of LNG volume, LNG exports are currently almost equally distributed between Europe and Asia, but are subject to a principal change in the near future, because the EU announced a decision to impose a full import ban on Russian LNG starting January 1, 2027.

Still, until now Russian LNG export geography is as follows:

• LNG from the Sakhalin 2 project (with a production capacity of 9.6 million tons per year), located in the Russian Far East, is almost entirely exported to Japan, South Korea, China, and Taiwan.
• LNG from the Yamal LNG project (with a production capacity of 16.5 million tons) is mainly supplied to Europe (Belgium, the Netherlands, France, and Spain), and some volumes are sent to Asia (primarily to China).
• LNG from the Arctic LNG 2 project (with a production capacity of 13.2 million tons for the two existing trains) is only supplied to China (to the Beihai LNG terminal) due to the multiple sanctions imposed on its supplies.
• LNG from the Portovaya medium-tonnage project (with a production capacity of 1.5 million tons), situated in the Russian North West, was exported to Greece and Turkey, and then to China, Italy, and Spain. After being sanctioned by the U.S. in January 2025 and experiencing a temporary shutdown, the plant managed to send several LNG shipments to China (to the Beihai LNG terminal).
• LNG from the medium-capacity Cryogas-Vysotsk project (with a project capacity of 0.66 million tons), located in the Russian North West, was supplied to Europe, with Belgium being the main importer. However, after the sanctions imposed by the U.S. in January 2025, there were difficulties with the export of LNG.

Since 2022, successive rounds of U.S., EU, UK, and Canadian sanctions targeting Russia’s LNG production and transportation, specifically those in the Arctic, have been imposed. Sanctions have been imposed on existing and planned LNG projects, logistics infrastructure, and companies that could directly or indirectly contribute to the development of the Russian LNG sector. There have been implemented EU restrictions on equipment, technology, and services related to the LNG sector, bans on new investment, curbs on transshipment via European terminals, and blows to shipbuilding and the tanker fleet.

The U.S. has placed on the SDN list multiple Russian companies involved in the LNG industry: the Obsky LNG, Arctic LNG 1, and Arctic LNG 3 projects in June 2024; the Portovaya and Cryogas-Vysotsk projects in January 2025. The most rigorous sanctions were introduced in November 2023 against the Arctic LNG 2 project.

The only country that directly imports Russia’s sanctioned LNG—LNG from the projects which are on the SDN list—is China. And the only LNG terminal in China to import it is Beihai LNG. The choice of this terminal for receiving sanctioned LNG is well calculated. By the way, following the first shipments of sanctioned LNG, this terminal was placed under UK sanctions in mid-October 2025. This terminal was chosen by Chinese authorities as a dedicated hub for receiving sanctioned LNG in order to minimize the risk of secondary sanctions and to avoid them for other key Chinese ports. Beihai LNG has an annual throughput capacity of 6 million tons, but often operates at low utilization rates (around 50%). Local gas consumption in China’s Guangxi Zhuang Autonomous Region, where the terminal is located, is minimal (around 5 billion cubic meters), and transporting gas to major demand centers in the south is associated with transportation costs. If this terminal is subject to U.S. secondary sanctions, the impact on the security of LNG supplies to China will be limited. Conversely, secondary sanctions on terminals in China’s northeastern provinces or the large province of Guangdong, for example, would impact buyers’ ability to purchase gas during peak months. Terminal utilization rates in Guangdong exceed 85%, and gas demand in the province is approximately 40 billion cubic meters.

LNG shipments to China from Arctic LNG 2 began in August 2025. By the end of 2025, 23 LNG cargoes totaling 1.3 million tons had been shipped (all to the Beihai LNG terminal). Significantly, despite the tightening of sanctions, Russian LNG exports to China have not only maintained, but also grown significantly over the four years since the introduction of the aggressive sanction program. According to Chinese Customs data, Russian LNG supplies to China in 2025 increased by 1.5 million tons, or 18.3%, compared to the previous year, reaching 9.8 million tons. Overall, between 2021 and 2025, Russian LNG exports to China more than doubled, from 4.5 to 9.8 million tons. According to media reports, Russian LNG is being sold to foreign markets at a significant discount.

However, Arctic LNG 2 may face challenges selling its LNG in the future. With the current nominal annual production capacity of the Arctic LNG 2’s two trains at 13.2 million tons, the annual throughput of Beihai LNG—the only terminal currently receiving LNG from Arctic LNG 2—is only 6 million tons.

China’s Role in the Sanctioned Arctic LNG 2 Project#

China’s involvement in the sanctioned Arctic LNG 2 project is hardly unique. China has extensive experience cooperating with countries under Western sanctions, including through the purchase of hydrocarbons from them. China has already established a practice of interacting with sanctioned oil companies—building an axis of evasion that allows it to profit in the short term from discounted oil imports while simultaneously protecting supplies from economic restrictions by creating alternative trade and payment systems. For example, in recent years, before the Middle East crises, China had increased its imports of Iranian oil, creating a parallel network of shippers, refineries, and financial institutions that allowed it to conceal imports and circumvent sanctions. The oil was transported by a shadow fleet of old tankers, which employed various tricks to avoid detection: disabling identification systems when entering Iranian ports, providing false location information, and carrying out ship-to-ship transfers outside authorized transshipment zones under the cover of bad weather, among other things. The main buyers of sanctioned oil were Chinese private refineries, located primarily in the coastal province of Shandong and known as teapots. These teapots operate on low margins and are highly motivated by discounts on sanctioned oil. They have already accumulated extensive experience evading U.S. sanctions and skillfully finding alternate supply routes.

A similar practice was used when purchasing oil from Venezuela. Moreover, oil from Iran and, to a lesser extent, Venezuela was often shipped to China via Malaysia (and sometimes via the UAE or Oman) and presented as Malaysian oil (including in trade statistics) to avoid U.S. sanctions. The discounts or reduced prices are the determining factor for China when making decisions about hydrocarbon imports, while the inclusion of suppliers on U.S. sanction lists is secondary.

In the case of the Arctic LNG 2 project, where Chinese companies CNPC and CNOOC hold a 20% share (along with France’s TotalEnergies and Japan’s Mitsui, each holding a 10% share), China is pursuing a strategy of developing commercially beneficial cooperation (LNG is supplied at big discounts) while simultaneously hedging risks. China’s participation in the sanctioned Arctic LNG 2 project is not solely motivated by the opportunity to purchase discounted LNG and obtain commercial benefits. Since February 2022, there has been a de-Westernization of Russia’s policy on attracting foreign partners to the development of the Arctic Zone of the Russian Federation, which has led to an unprecedented increase in China’s importance to Moscow as a partner. This has expanded China’s opportunities to participate in the development of the Russian Arctic, thereby cementing China’s Arctic identity.

On the other hand, Beijing also pursues a risk-hedging strategy vis-à-vis the Arctic LNG 2 project. China avoids publicity, with many aspects of cooperation being deliberately downplayed. Major Chinese financial institutions have become extremely cautious about financing the project since 2022, leading to a slowdown in credit line repayments. CNPC and CNOOC have officially declared force majeure due to U.S. sanctions to protect themselves from potential claims and fines. Some Chinese private companies involved in supplying equipment for the project (such as Wison New Energies, which was responsible for constructing the modules) have publicly announced the suspension of their operations in Russia after the risk of sanctions increased. Such actions are primarily aimed at hedging the risk of U.S. secondary sanctions, which could limit China’s access to global financial markets and technology supply chains.

While demonstrating caution, China has not completely withdrawn from the project, and its participation has been significant throughout its development. Following the withdrawal of Western contractors from the Arctic LNG 2 project, Chinese engineering companies and shipyards (such as Wison New Energies and Penglai Jutal) took over almost all remaining work on the construction of gas liquefaction modules, power plant construction, and heavy equipment assembly. Although Wison New Energies formally announced the suspension of its operations in Russia in June 2024, monitoring of shipping data showed that Chinese vessels were still transporting modules along complex routes, demonstrating covert support from Chinese companies. Industry experts assessed that the Chinese equipment was less advanced than its Western counterparts, but for the Russian gas company Novatek (the operator of the Arctic LNG 2 project), efficiency and the ability to meet project deadlines were more important. For China, the participation of Chinese companies in Russia’s large LNG project opened up opportunities to develop national production capacity and enter global markets in the construction of specialized equipment for LNG projects.

Thus, after 2022, China remained committed to participating in the Arctic LNG 2 project, maintaining its equity stake, manufacturing modules, and purchasing LNG produced there. At the same time, due to concerns about potential secondary U.S. sanctions, China has officially demonstrated a certain degree of refusal and avoidance of providing additional financing for the project, guarantees for the supply of key proprietary equipment, and public technical cooperation.

Conclusion#

Sanctions imposed after February 2022 against the Russian LNG sector have had a significant impact on Russia’s cooperation with foreign partners on Arctic LNG projects, particularly Arctic LNG 2, which has become the primary target of Western sanctions. Initially, the sanctions were aimed at restricting access to specialized Western equipment and technology, and then at undermining logistics to reduce project utilization and increase transaction costs.

The goal of Washington’s sanctions against Arctic LNG 2 at the current stage, when two of the planned three trains have already begun production, and the fleet of ice-class LNG carriers is slowly, yet gradually expanding, is to prevent the produced LNG from reaching global markets, especially Europe. LNG supplies to China, although considered undesirable, are generally not yet in the American sights. This is likely a temporary phenomenon, as competition among LNG exporters will intensify as more and more LNG projects come online globally.

Despite the sanctions, the Russian LNG industry continues to develop, albeit at a slower pace than initially envisaged in the industry’s development strategy. China’s role in this should not be underestimated. China is consistently implementing a strategy of maintaining its participation in the Arctic LNG 2 project while hedging risks. The strong Russian-Chinese cooperation, explained on the Chinese side by a range of rational and pragmatic interests, has significantly reduced the effectiveness of Western sanctions against the Arctic LNG 2 project. The plant is completed, two production trains are operational, the fleet of ice-class LNG carriers is gradually expanding, and LNG shipments are ongoing. LNG shipments to China from the sanctioned project, which began in the summer of 2025, send a clear signal of Beijing’s intention to purchase cargoes from the project and its readiness to resist Donald Trump’s political blackmail through threats of secondary sanctions or higher tariffs on Chinese goods.

The Middle East crises added value to Russian Arctic LNG projects not only in Chinese, but also in other Asian countries’ calculus. The disruptions of LNG shipments through the Strait of Hormuz are being strongly felt in South Korea and Japan, which remain heavily dependent on Middle Eastern supplies. It was also felt in many other Asian countries, because around 80% of LNG flowing through the Strait is destined for Asia. Some Asian countries have been pursuing long-term LNG supply arrangements. Russian Arctic LNG from the Yamal LNG project, which is not under any sanctions, but due to the announced EU ban on purchasing Russian LNG will be forced to be redirected elsewhere, may be a very attractive option. Meanwhile, Novatek is in talks to supply LNG to private companies in Vietnam, starting at 1 million tons per year. India has also been considering resuming purchases of Russian LNG.