The Great Game: How a Trump deal on Ukraine could open the floodgates for Russian LNG (Dekleptocracy Report #34, 23 January 2025)
THE DEKLEPTOCRACY REPORT
Issue #34 January 23, 2024
BOTTOM LINE UP FRONT:
This week we attempt to parse a chaotic week in Washington DC – with Donald Trump taking office on Monday and signing an avalanche of Executive Orders – and raise a question that’s been keeping us up nights: What if the new administration cuts a deal with Russia to get its showpiece halt to the war in Ukraine thatallows the Kremlin’s liquified natural gas (LNG) projects to break free from sanctions and seize a big share of the global market? We argue that this is not only possible, the Russians appear to be laying the grounds for it. We call for concerted action to get Congress and US allies to prevent such a deal, which would make Russia’s prior manipulation of pipeline gas supplies in Europe look quaint.
THE GREAT GAME: HOW A TRUMP DEAL ON UKRAINE COULD OPEN THE FLOODGATES FOR RUSSIAN LNG
Ukraine’s decision to terminate the transit of Russian gas at the end of 2024 was historic – Kyiv hailed it as “one of Moscow's biggest defeats”. It was also another blow to Russia’s already beleaguered gas giant Gazprom, shaving another 16% off of its export sales. In the meantime, the European Commission continues to advance “REPowerEU,” its plan to make Europe independent from Russian fossil fuels before 2030. All signs point to a once-in-a-generation opportunity to break the dependence of democratic countries on nominally cheap Russian natural resources. However, a read of recent developments suggests that the new US presidential administration could be mulling a deal that could rescue Russia’s natural gas industry, specifically pulling Novatek’s Arctic LNG-2 multi-billion-dollar megaproject out of a sanctions black hole (something DKP’s Ukrainian partners worked hard to support), providing Russia with a critical economic lifeline – which would be a strategic blunder that will be felt for decades to come.
We are at a make-or-break moment for Russia’s natural gas sector, which, combined with oil, accounts for more than 16% of GDP and a large share of its foreign currency earnings. Unlike total crude oil exports, which grew in 2023 compared to the 2021 figure (a reference year as it was the last full year before Russia’s full-scale invasion of Ukraine), gas exports declined by a whopping 42% over the same period. Almost all of this was attributable to declining European purchases of pipeline gas. But LNG, representing 15-20% of total Russian gas output, remains a crucial standout, especially in Europe. Amid a recent cold snap on the continent, commodities intelligence firm Kpler reported a record high in EU purchases of Russian LNG during the first 15 days of 2025, even as the full-scale war heads towards its third anniversary. Beyond crucial cash for the war machine, Europe’s continued appetite for LNG provides Russia with continued leverage over Europe, an echo of the “Russian veto” over European foreign policy previously made possible by its control over pipeline gas, including Nordsteam-2, before the full-scale invasion.
Simply put, both Moscow’s economic plans and geopolitical clout depend on LNG: before the war, the Kremlin set an ambitious target of commissioning 100 tons per annum (tpa) of LNG capacity by 2030 targeting European and Asian markets. Writing last year, consultancy Rystad Energy estimated that Russia could miss this target by as much as 60 million tpa, amid sanctions and challenges in securing long-term contracts amid the restructuring of global gas markets. How close Russia gets to its target is today very much in the hands of US and EU policymakers. Unlike pipeline gas, the focus here is not the flamboyantly corrupt monopoly Gazprom but the nominally privately owned Novatek, where France’s TotalEnergies wrote down a significant stake (19.4%) that it said it could not sell after the full-scale invasion. Rystad forecasts that Novatek will account for almost 80% of Russia’s LNG capacity in 2030 through its Yamal LNG, Arctic LNG-2, and Murmansk LNG projects.
Chest thumping
As we have reported in past newsletters, the Biden administration demonstrated particular resolve in trying to prevent the completion of Arctic LNG-2, sanctioning the project and warning off key partners and suppliers, leading TotalEnergies (sound familiar?) to declare force majeure on the project in early 2024, withdrawing for now from managing or taking deliveries of LNG from the project. When the US responded to Ukrainian requests to sanction the project in late 2023, Geoffrey Pyatt, then the Assistant Secretary of State for Energy Resources said the goal was to “kill” it. Notably, however, the US Navy and Norwegian coast guard – the latter closest to the scene – failed to interdict key equipment deliveries in 2024, repeating the pattern of robust sanctions but an absence of on-the-ground enforcement that characterized the Biden administration’s approach to Russia’s strategic energy projects.
In the final days before leaving office, President Biden imposed what was widely described as the toughest US sanctions package yet on Russia’s energy sector, targeting major producers, tanker fleets, insurance providers and financial entities associated with Russian oil and LNG exports. It’s claimed that the incoming administration would face at least speed bumps in undoing these moves, as they were enacted under Executive Order 13662, which congress enshrined as legislation through the 2017 Countering America’s Adversaries Through Sanctions Act (CAATSA). Removing them would require congressional notification and offer legislators, many of whom support Ukraine, the potential to act to block their removal – although no single Republican Member of Congress has yet to push back on any part of the Trump agenda to date.
In the first days of the new administration, the president’s primary intervention on Russia was, tellingly, via a social media post. He said he would impose “high levels of Taxes, Tariffs, and Sanctions on anything being sold by Russia to the United States, and various other participating countries” if Putin did not agree to end the ongoing conflict in Ukraine. It’s worth noting that, in bilateral terms, Russian exports to the US, around US$200 million in 2023, were less than half of Panama’s over the same period. The US is not a market for Russian goods. But it, crucially, controls many aspects of the global financial markets Russia needs to sell its goods anywhere in the world. In his statement, Trump emphasized that he was “not looking to hurt Russia” and said, in case the nuance was missed, that “it’s time to ‘MAKE A DEAL’”. Previously, several Trump advisers and cabinet nominees had indicated a potential willingness to leverage – or further tighten – sanctions on Russian oil and LNG in negotiations aimed at ending the Ukraine conflict.
Contours of a deal
The Russians have been listening to the emphatic MAKE A DEAL coming from the president since long before the election. Novatek, Russia’s largest privately held LNG producer, has recently intensified lobbying efforts in Washington, seeking relief from sanctions. In December, it dispatched senior executive Denis Solovyov to DC to engage US-based lobbyists, reportedly specifically on the Arctic LNG 2 project. Checks of disclosures have yet to uncover which lobbyists are pitching for this work or may have gotten a mandate. In December, High North News reported that Novatek had paid US$1.2 million to communications firm Qorvis in 2014-17 and US$130,000 to public strategy firm Mercury in 2017. It also reported that Novatek’s Arctic LNG 2 subsidiary had spent US$300,000 on US lobbying in 2023, although, again, no firms were mentioned. For Putin, trying to resurrect Gazprom’s pipeline deals in Europe might prove unachievable. But there is a strong implication that Russia will make any Ukrainian ceasefire deal – not to mention the preconditions for any longer term settlement – contingent on allowing Russia unfettered access to global markets for its LNG.
There is a narrative that Trump will maintain sanctions on Russian hydrocarbons because it will benefit US LNG producers, who have captured half of the European LNG market since 2022. In July 2024, Candidate Trump pitched US gas exports to a dozen European leaders, pledging that the US, unlike some countries, would not use market share to coerce other countries. In his first raft of executive orders this week, the president reversed Biden’s ban on new LNG export licenses and he has repeated the GOP’s perennial “drill, baby, drill” pledge that has helped fuel a natural gas production boom in states like Texas, Pennsylvania, Louisiana and West Virginia. Yet, as with his reversal on the US TikTok ban, which could put the billion-dollar platform’s US arm in administration-friendly, tech-bro hands, there’s a very powerful domestic lobby that would benefit from a sudden change in course on sanctions on Russian LNG projects. Every major Russian LNG project to date has involved at least one Western energy major, not to mention dozens of Western engineering and services companies, shippers and more. Until a raft of sanctions came down, it was US, European and South Korean companies that were producing the components and Arctic-class tankers for Arctic LNG-2. In short, there are billions of dollars on the table.
Not convinced? A Ukrainian energy analyst who spoke to DKP after attending the COP29 climate summit in Baku in November and the World LNG Summit and Awards in Berlin at the beginning of December described both as being “trade shows” for Novatek, which had pavilions at both. Notably, the Berlin conference organizers ignored a concerted public campaign calling for Novatek to be excluded. Novatek’s team was reportedly well received by their Western colleagues, including Americans. Novatek’s warm reception at those events, combined with its DC lobbying effort, suggest that the Russian energy giant and its as-yet-unnamed lobbyists see a crucial opportunity right now to rescue the Arctic LNG-2 megaproject. If so, the EC’s campaign to ban Russian hydrocarbons will see renewed intense pressure from European majors and the US to change course. Looking further afield, there are immense opportunities for American and European firms willing to set aside any moral qualms over Russian aggression against democracies in the pursuit of profit. For example, for US and Russian LNG producers to use Russia’s proximity to Asian markets – including through the Northern Sea Route – to put in long-term deals that lock-in energy markets for decades to come. If you oppose this because it will funnel billions of dollars to the Russian war machine or prove environmentally disastrous, the time to act is now.
The Dekleptocracy Project (DKP) is a 501(c)(3) following the authoritarian money from Virginia. We're on a mission to show how existing levers of accountability can protect democracy and prevent authoritarians, their networks, and enablers from exploiting or circumventing the US system. As always, please sign up and forward this newsletter.
