(Bloomberg) -- The crayon marks on the wall of the sparsely furnished apartment hint at it being a conventional family home. But the single sofa, pink plastic chair and child's bike obscure something else: a vital component in Russian efforts to circumvent US energy sanctions. And it’s sitting 90 miles southeast of the Indian city of Mumbai.
Since June the apartment has been the registered address of Ocean Speedstar Solutions. The Mumbai-incorporated company provides essential support to a Russian shadow fleet of tankers exporting liquefied natural gas from a flagship facility above the Arctic circle. On occasion, some of the vessels have disguised their location as they play a high-stakes version of hide-and-seek with US authorities.
The apartment is lived in by Nikhil Ganesh Ghorpade, a photojournalist without any previous connection to the energy industry. He says he was persuaded by a friend to register his name and home address on behalf of the company and is listed by an official Indian registry as Ocean Speedstar’s sole director. By agreeing, he unwittingly joined a complex network stretching from Dubai to India and China which is being used to create a shadow fleet of gas carriers to ferry the fuel from Russia’s $21 billion Arctic LNG 2 facility.
“Complicate, confuse and delay,” Kjell Eikland, managing director of Eikland Energy AS, who has worked in the oil and gas industry for more than 30 years, says of Russia's strategy. “The Russians have been effectively building up a contact network of individuals. And they find individuals that happen to need money. But Russia is doing all the scheduling, the planning, the eventual selling.”
Russian President Vladimir Putin has adopted the Arctic LNG 2 facility, which came on stream in December, as a national prestige project. It’s an opportunity to showcase the country’s technology but also seeks to prove that Western sanctions — imposed after Moscow’s 2022 invasion of Ukraine — will not stop the country’s trade.
Bloomberg’s analysis of company data, satellite images and ship-tracking information shows the lengths to which Moscow appears to be willing to go to capture market share. In the short term it could provide some wartime profit, but the government’s ultimate goal is to triple LNG exports by 2030 as one of the pillars of any post-conflict economy — especially after losing Europe as its top pipeline gas customer.
The importance of LNG to the economy was spelled out by Putin in a speech last year as delivery of the first production train to the Arctic facility began. Such projects “provide a comprehensive effect for the entire economy, allow us to win the share we need in the global LNG market, and allow us to develop adjacent industries,” he said.
Since the Ukraine invasion, the Russian oil industry has succeeded in building a so-called dark fleet of hundreds of vessels to ferry its restricted oil. So far, the gross value of its seaborne crude oil exports has been about $210 billion at the point of loading, based on vessel tracking data compiled by Bloomberg and Russian crude export prices provided by Argus Media.
Moscow now appears to be mimicking the strategy with LNG.
Washington has responded by swiftly rolling out sanctions, intensifying the commercial fight over LNG between Russia and the US — the world’s top supplier. Arctic LNG 2 was placed under sanctions in November 2023 before it had even begun production. Buyers, anxious not to fall foul of US restrictions, have been warned off gas from the plant and the delivery of specialized vessels that can traverse icy waters has been halted.
The gas is effectively trapped in the Arctic.
Backed into a corner, Russia is taking increasingly desperate and potentially dangerous steps to try to keep the fuel flowing, even offering steep discounts to persuade reluctant customers, according to people with knowledge of the matter. Bloomberg spoke to more than two dozen LNG traders, company officials and ship brokers for this story. All asked not to be identified describing private deliberations.
“Putin recognizes that the LNG market is the most important commodity in the next 10 to 15 years,” says Maximilian Hess, author of Economic War: Ukraine and the Global Conflict between Russia and the West, “and he wants Russia to play a role in that market.”
‘Symbolic of a Resurgent Russia’
Moscow has big hopes for Arctic LNG 2, Russia’s largest gas plant, which eventually could produce as much as 20-million-tons of fuel a year. Large-scale construction began in 2019 with the aim of capturing a greater market share in Asia, where demand is set to grow 40% through 2030. Russia has an ambition to control 20% of the global market by the end of the decade, compared to just 8% last year. That puts it in direct competition with US suppliers who expect to double their total LNG exports this decade. Both view China, the world’s biggest buyer, as a key client.
After Western engineers pulled out in the wake of the Ukraine invasion, Novatek PJSC — the private company that owns 60% of the venture that manages Arctic LNG 2 — had to complete the build while navigating its way round trade restrictions. Mothballing was not an option.
“Giving up on Arctic LNG 2 doesn't just simply mean shuttering or delaying one project,” says Malte Humpert, founder of the Arctic Institute, a Washington-based think-tank, “it's symbolic for a resurgent Russia.”
The country’s existing LNG facilities — including Yamal and Sakhalin-II — are not sanctioned and continue to operate normally delivering Russian fuel to Asia and Europe, which has helped avoid a global gas shortage.
Russian government officials are now seeking markets for the LNG from Arctic 2, via a network of companies tasked with creating a fleet of vessels and willing buyers to begin exports from the locked-in facility, according to people with knowledge of the strategy. Putin's spokesman didn't respond to a request for comment on whether the government is involved in the creation of a shadow LNG fleet.
Executives from Novatek were in Mumbai in February meeting with shipping companies, the people said. Novatek has also opened an office in China to find new customers, according to the people. Novatek and Leonid Mikhelson, its chief executive officer, have been navigating US sanctions for roughly a decade after the company was hit with restrictions in 2014 in response to Moscow’s annexation of Crimea.
Novatek itself is not accused by Washington of sanctions violations, but its Chinese arm, Novatek China Holdings, was sanctioned by the US in August for marketing gas from the Arctic LNG 2 project.
“The relationship between Mikhelson and Putin is close. They meet regularly, as official videos and transcripts also show,” says Eikland.
Neither the management of Arctic LNG 2 or Novatek responded to requests for comment from Bloomberg. A press release issued by Novatek on Sept. 10 denied that the company is involved in creating or managing the dark fleet, describing such suggestions as “untrue”.
Faking, Spoofing and Empty Offices
Efforts to build a shadow fleet began in earnest in March 2024. Dubai-based Nur Global Shipping bought several older gas carriers that would have otherwise been sent to the scrapyard. Nur drew attention from LNG traders by paying more than $50 million each for some vessels, an unusually high premium for ships that old and which don't comply with the latest environmental standards, say traders and shipbrokers, who asked not to be named as they aren’t authorized to speak to the media.
The address used by Nur is the Meydan Hotel located in a Dubai free trade zone that has previously been criticized by US and some local officials for its lack of transparency. Nur didn’t respond to a request for comment, and there wasn’t a representative at its address — a shared workspace in the hotel — when Bloomberg visited.
Nur’s website is registered to South Oil Trading, a UAE-based company with a business license that expired in 2022. South Oil’s website is registered to another firm, Caran Energy, which is also Dubai-based. Neither company responded to requests for comment. Caran Energy took down its website after it was contacted by Bloomberg. Caran's IP address links back to several Russian network addresses, which is unusual for companies operating out of the UAE, according to David Tannenbaum, director at Blackstone Compliance Services, which assists companies in navigating sanctions and has tracked shadow fleet activity.
Nur assembled a collection of five vessels, with two coming from JOVO Group, a Chinese LNG importer, according to shipbrokers, traders and information from a shipping database. The purchases were made through five companies. One of the ships was called Pioneer and until recently had primarily delivered fuel to Northeast Asia, according to ship-tracking data. JOVO didn’t respond to a request for comment.
Toby Dunipace, partner and global head of LNG at shipbrokers SSY, says Nur “didn’t exist on my radar until this year.” Adding that: “The risk of selling your ship and it being associated with a Russian dark fleet is one thing. But if it's offset by a significant uptick in price, then that's another factor as to why people are considering doing it.”
The interest of LNG traders was piqued when the Pioneer was moving off the northern coast of Norway in the middle of July. The ship, sold to Nur around April, was performing near perfect ovals in the Barents Sea, maintaining virtually the same speed and direction on every corner, according to ship tracking data.
Traders believe the ship was faking its location in a process called “spoofing” — making it appear on digital tracking systems that the ship was in one place, when in reality it was heading to the Arctic LNG 2 export terminal. Satellite images taken on Aug. 1 confirm that the vessel docked at the facility, the first to ever do so. In quick succession, two more ships — Asya Energy and Everest Energy — docked at the facility, according to Bloomberg analysis of satellite images, while faking their ship-tracking location to show them in the Barents Sea. Asya Energy had spent months off the coast of Oman, while Everest Energy came from Malaysia.
All three vessels are managed by Ocean Speedstar Solutions — the company registered to Ghorpade. He declined to comment on its operations. Its commercial address — separate from Ghorpade’s home — is listed as a Mumbai building dominated by shipping operators. When Bloomberg visited the office it was occupied by a different tenant and those working there said they had never heard of Ocean Speedstar.
Randhir Jaiswal, spokesperson at India's external affairs ministry which helps formulate foreign policy, says the country doesn’t follow unilateral sanctions. He didn’t specifically comment on the role Indian companies may play in facilitating the Arctic LNG 2 trade.
The opaque nature of this network makes it virtually impossible to trace the vessels back to their ultimate owners.
“We are determined to work with our allies and partners around the world to drive down those resources, and in particular, to do everything we can to thwart Russia's future energy revenues and projects which are focused on future energy, such as Arctic LNG,” Geoffrey Pyatt, the US State Department’s top energy official, said in an interview. “This is an area where the US has a higher degree of freedom of movement because we are such a large LNG producer.”
At least two LNG shipowners and several shipbrokers refused to do business with Nur, because it didn’t pass their know-your-company due diligence process, according to traders and brokers based in Dubai. Yet, Nur was able to find willing partners and deals were facilitated by smaller unnamed shipping brokers based in the UAE and India, the traders and brokers say.
Shortly after Nur bought the vessels, management of them was transferred to Ocean Speedstar and another Mumbai-based firm, Plio Energy Cargo Shipping, according to Equasis, a global shipping database. The five companies used to purchase the vessels subsequently changed their addresses to the Mumbai offices of Ocean Speedstar and Plio Energy, the Equasis data shows.
Plio Energy, like Ocean Speedstar incorporated in June, is also registered to a modest apartment far from Mumbai’s bustling business center. The Plio owner, Karishma Amit Pawar, declined to comment when approached by Bloomberg outside the address.
“While we are not involved in these transactions, what is clear is that the company that’s buying in Dubai is effectively just a middleman to get around sanctions checks,” says Dunipace. “What happens after that? That’s when it becomes dark.”
Winter and Sanctions Closing In
Arctic LNG 2 has exported just five shipments since early August, and has yet to deliver the fuel to a buyer. There are two cargoes sitting in a sanctioned floating storage unit near Murmansk. The other three are in transit.
It's not just US sanctions that threaten the trade, time is also running out. The dark fleet vessels are only equipped to traverse the Arctic waters until the end of October, when thick ice will make it impossible. And despite efforts to purchase icebreaker vessels and build their own it isn’t clear that Russia will have them in time to continue the shadow fleet voyages.
The latest two shipments left in September. Both are on their way to Asia via the Northern Sea Route through the Arctic, according to ship-tracking data. Traditional LNG vessels avoid the route out of fear of colliding with icebergs.
“Taking such an old, ill-suited vessel though the Northern Sea Route suggests Arctic LNG 2 is running out of options,” says Tom Marzec-Manser, head of gas analytics at energy consultant ICIS. “It appears these are desperate times for Arctic LNG 2 and so they are resorting to desperate measures.”
Many thousands of miles away, the US State Department has been closely watching Arctic LNG 2’s deliveries. Just weeks after the first vessels docked at the terminal, the US announced sanctions against three of them including the Pioneer, along with Ocean Speedstar, four other vessels and Novatek’s Chinese unit. “That’s an unprecedented pace,” says Humpert from the Arctic Institute.
About 48 hours later, on Aug. 25, satellite images showed the newly sanctioned Pioneer attempting a rare open water ship-to-ship transfer — which is more difficult than for oil — to a vessel that hadn’t yet been hit with restrictions, the New Energy, owned by Plio Energy. The US sanctioned Plio and two of its ships, including New Energy, on Sept. 5. Management of the two ships has since been transferred to two Gurugram-based companies that have separate addresses in the same building, according to information on Equasis.
Russia, however, continues to push ahead. Arctic LNG 2 is continuing to build the second phase of its facility, even as sanctions threaten to upend the third and final stage. Novatek executives are traveling around the world to find end-users for its sanctioned LNG, and have pursued multiple deals in China and with other Asian buyers, according to traders and company officials who wanted anonymity to discuss private details. Even though they’re offering the fuel at a 40% discount to spot rates, the potential customers — most of which also buy LNG from the US — are reluctant to risk retaliation from Washington.
Putin remains determined. “We will develop a gas liquefaction business,” he told the Eastern Economic Forum in September. “They are trying to create problems for us, and Mr. Mikhelson knows this better than anyone else,” he said, referring to the Novatek CEO.
“We will do this despite any difficulties that they are trying to create for us,” he added.
--With assistance from Ruth Liao, Iain Marlow, Anthony Di Paola, Sudhi Ranjan Sen, Greg Sullivan, Adrian Leung and Julian Lee.
(Updates with details of ship management change in the fourth to last paragraph.)
©2024 Bloomberg L.P.