How Italian companies circumvent sanctions against Russian gas

Despite restrictions related to the Arctic LNG 2 gas plant project, shipments from Italy to Russia via the UAE and China have amounted to 134 million euros.

In a joint investigation by Arctida and Domani, we reveal how key Italian and international companies circumvent sanctions by using intermediaries in third countries.

European Union sanctions have not prevented dozens of Italian companies from supporting the construction of Arctic LNG 2. Some of these companies, registered in Italy, are state-controlled, while others are owned by foreign entities. In most cases, goods were not delivered directly but rather through intermediary companies, primarily based in China, the UAE and Turkey – countries that have not imposed sanctions on Moscow following the invasion of Ukraine. Two of these companies, registered in the Emirates and playing a key role in numerous intermediary chains, have direct ties to Russia.

The Arctic LNG 2 project as a strategic asset for Moscow

The Arctic LNG 2 project involves the construction of three liquefied natural gas (LNG) production lines with a total annual capacity of 19.8 million tons. In 2023, Russia produced 33 million tons of LNG; thus the full launch of Arctic LNG 2 will considerably increase the country's production capacity, compensating for the decline in pipeline gas exports to the European Union.

A longtime ally of Vladimir Putin, Gennady Timchenko, has a personal stake in the Arctic LNG 2 project. The main stakeholder of the project is Novatek, where significant shares are held by Timchenko himself and the company's CEO, Leonid Mikhelson. The project also involves France's TotalEnergies SE, which, although it has retained its share, has excluded it its from financial reporting.

For these reasons, the Arctic project has been the focus of Brussels' attention from the very beginning. On April 8, 2022, the EU Council published the fifth package of sanctions against Moscow, prohibiting “the export, directly or indirectly, of goods and technologies suitable for use in the gas liquefaction process.”

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Since the LNG sanctions came into effect on April 9, 2022, the Arctic LNG 2 project has received components from a dozen Italian companies worth a total of 134 million euros.

The total value of deliveries since the beginning of Russia's invasion of Ukraine has amounted to 194 million euros, and it is the post-sanctions deliveries that deserve special attention. The bulk of the components from Italy were provided by Nuovo Pignone, the Florence-based subsidiary of the American company Baker Hughes, known for manufacturing gas turbines.

The value of their supplies for Arctic LNG 2 totaled 19.6 million euros.

Other significant suppliers include Tenaris and Marcegaglia, both producers of steel pipes, the international cable company Prysmian, Cortem from Friuli, specialized in electrical equipment, the Italian division of the American giant Honeywell, and Erresse, a valve manufacturer from the province of Novara.

Intermediary supply schemes for Russia

Among the Italian companies actually supporting the Arctic LNG 2 project are state-owned enterprises such as Valvitalia and Ansaldo Energia, which produce valves and turbines. Products from these companies continued to flow to Arctic LNG 2 even after April 9. For example, Valvitalia supplied the project with products worth 4.9 million euros. The participation of state-owned companies in the construction of Arctic LNG 2 took place through a number of intermediaries, the most active of which was Nova Engineering and Construction from the UAE.

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The supply scheme looked like this: Italian companies sold goods to firms not registered in Russia, which then transported the products to the Arctic, formally complying with the sanctions requirements.

Among the most frequently used intermediaries are Chinese companies Penglai Jutal Offshore Engineering Heavy Industries, Gac, Bomesc Offshore Engineering Company, Qingdao McDermott Wuchuan; Turkish groups Maritsa and Modmer Trading; and two companies from the UAE: Nova Engineering and Construction and Waterfall Engineering. According to regulators, the latter have direct ties to Russia and the Arctic LNG 2 project.

How Waterfall Engineering and Nova Engineering are linked to Russian projects

Waterfall Engineering Ltd is a company registered in the Abu Dhabi Global Market financial center, located in one of the towers on Al-Maria Island in Abu Dhabi. The same building houses the office of Gydan LNG, associated with the Arctic LNG 2 project on the Gydan Peninsula. Until June 2022, Gydan LNG was a joint venture between Italy's Saipem (20%), France's Technip Energies (70%) and Russia's Nipigas (10%). Nipigas is currently the sole owner of the company. Nipigas' major shareholder, through stakes in the petrochemical giant Sibur, is Gennady Timchenko, who has been under EU sanctions since February 2022. Timchenko is also a shareholder in Novatek.

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Emirati Waterfall Engineering is registered at the same address in Abu Dhabi as the Nipigas-controlled company, owned by Gennady Timchenko.

Another Emirati company, Nova Engineering and Construction, which has repeatedly acted as an intermediary for supplies from Italy to Arctic LNG 2, is also linked to Moscow, though less directly. It shares an office and a controlling shareholder, Uzbek national Ulugbek Kamolov, with Smart Solutions Ltd.

Smart Solutions has two Russians on its board of directors: Denis Mishchenko and Egor Zubarev, who have ties to the Russian oil and gas sector. Mishchenko, who previously worked at Ural Control Systems Installations, was a manager at Nipigas in 2020, where he oversaw the Arctic LNG 2 project. Egor Zubarev, according to his LinkedIn profile, is on the board of directors of Nova Engineering and Construction and previously worked at Lukoil until 2022.

Smart Solutions is included in the US sanctions lists. According to regulators, the company was used by Russia to circumvent US sanctions, on the way to supporting the Arctic LNG 2 project.