1. Role of Mikhelson and Novatek in Fossil Fuel Exports and Russian Budget

Leonid Mikhelson, one of Russia’s wealthiest oligarchs (worth $21.6 billion in 2023), is the founder and CEO of Novatek, Russia’s second-largest natural gas producer after Gazprom and a key shareholder of petrochemical company Sibur, co-owned by multiple Putin’s associates. The nominally private company Novatek, co-owned by Kremlin-connected oligarch Gennady Timchenko along with Mikhelson, continues to be the leading supplier of Russian liquefied natural gas (LNG) to Europe and international markets. Mikhelson and Timchenko are members of Vladimir Putin’s inner circle and, with the assistance of his regime, have seized stakes of international companies in Russian oil and gas projects and became key beneficiaries of the war in Ukraine. 

Mikhelson is a close proxy of Putin, providing personal gifts for the birthdays of the dictator and sponsorship for his daughter’s entities and gas business stakes for his son-in-law. Mikhelson’s influence extends beyond the energy sector into insider deals, cooptation of Western energy companies and international politics, reflecting his deep connections with Putin and his security services. His actions help cause severe damage to Ukraine’s security, Western democracy and global climate protection efforts.

Mikhelson’s key entity is Novatek, Russia’s largest private natural gas producer. According to the latest disclosed data, Leonid Mikhelson owns 24.8% of the shares of Novatek, Timchenko – 23.5%, TotalEnergies – 19.4%, and Gazprom – 10%.

Novatek is the majority owner (50,1% shares) of Russia’s largest LNG terminal, Yamal LNG, and is currently implementing the Arctic LNG 2 project, a massive gas project on the Gydan Peninsula with a capacity to produce 19 million tonnes of LNG per year. 

In 2022 Novatek stopped publishing its regular financial results and then resumed, showing altogether under $10mn of taxes paid into the Russian budget since 2022, according to our estimates from available reports. Yamal LNG also hid regular information flow on taxes (income tax and other taxes) paid to the Russian budget, but we know that just alone in 2022 its income tax along with later windfall tax was around $1.5 billion. In 2023, Yamal LNG became one of the most profitable projects in Russia according to Forbes. Given that the overwhelming majority of $11 billion worth of Russian LNG exported since 2022 to June 2024 was from Novatek and its affiliates with international shareholders, we estimate Yamal LNG and other affiliates (where Novatek has a stake and is an operator), paid at least $3 billion in income tax and other taxes and windfall payments (the undisclosed payments in 2023 and first half of 2024 are highly unlikely to be less than what we know was paid in 2022). 

Apart from budgetary contributions, even more dangerous for the international community are Mikhelson’s plans. Novatek’s projects, particularly through Yamal LNG and Arctic LNG 2, aim to significantly increase Russian LNG sales to international markets and could double the company’s and its affiliates’ export capacity. In the wake of the Ukraine invasion, Russia redirected energy exports to Asian markets, especially China and India, sustaining revenue flows. In 2023 Yamal LNG produced almost 20 million tons of LNG, which is around two-thirds of overall Russian LNG production. Novatek’s Arctic LNG 2 project, which is expected to produce up to 19.8 million tons of LNG per year, is central to Russia’s export expansion strategy.

In addition to Novatek, according to The Insider, over the first 17 months of Russia’s full-scale invasion of Ukraine, Sibur (where Mikhelson owns 30.6% stake) exported products worth €3 billion through its European subsidiary, Sibur International GmbH. Despite the ongoing war, the Russian conglomerate remains unaffected by sanctions and continues to reap profits from its global sales operations. 

2. Sanctions and international reactions:

In 2014, the United States imposed sanctions on the gas company and Mikhelson’s partner Gennady Timchenko. Yamal LNG was cut off from Western loans.

As of October 2024, Mikhelson is sanctioned by: UK, Australia, New Zealand, Canada, Ukraine.

However, despite 10 years into the war in Ukraine and demands from Razom We Stand and other representatives of Ukrainian civil society, the US and EU have not yet added Mikhelson and his family to their sanctions lists.

Since September 2023, the US has sanctioned operations of Arctic LNG 2 project to reduce Russia’s ability to gain revenues from future LNG production. The sanctions adopted by the US State Department in November 2023 were intended to block European and Asian countries from buying any liquefied natural gas produced at Arctic LNG 2, aiming to entirely derail the project. In February 2024, the UK government also introduced sanctions against the Arctic LNG 2 project, its director, Oleg Karpushin, and six Novatek directors. Still, these measures are insufficient to stop Novatek’s ambitions to circumvent sanctions and continue LNG expansion. Increased activity on the new build and secondhand market of LNG tankers confirmed earlier insights by industry experts of an impending “dark fleet”, that Russia is trying to establish and use for the expansion of its LNG exports, particularly with deliveries from the Arctic LNG 2 facility. 

Since then the US and UK have sanctioned LNG ships visibly involved with the project and Novatek continues to seek new covert methods for exports from Arctic LNG 2. Thus, in August 2024, Novatek loaded the first cargo, and then a week later, a second cargo from its sanctioned Arctic LNG 2 project, all managed by the same Indian-registered company. The US responded swiftly to this evidence and, on August 23, sanctioned these – Pioneer and Asya Energy ships – and five suspected Russian shadow LNG fleet vessels. Two more ships were sanctioned on September 5. The UK sanctioned them on September 30.

According to The Moscow Times’ investigation, EU companies continued to deliver equipment and spare parts through intermediaries to Arctic LNG until January 2024. The total value of imported equipment from May 2022 till January 2024 was EUR 580 mln.

As for LNG production and gas marketing, TotalEnergies has been key in helping Novatek achieve its European ambitions. Like Nord Stream 2, the joint ventures between Novatek and TotalEnergies — Yamal LNG and Arctic LNG 2 — have been leveraged by Russia for a decade to strengthen its position in the LNG market and diversify gas supply routes to Europe, effectively bypassing Ukraine’s gas transit system. Yamal LNG remains unsanctioned and a big revenue stream for Russia thanks to such a partner as TotalEnergies. A Global Witness analysis revealed that TotalEnergies is now the largest foreign purchaser of Russian LNG worldwide. Under a 2018 deal, the company committed to buying 4 million tons of gas annually from Yamal LNG. In the first half of 2024, imports of Russian LNG to Europe rose by 7% compared to 2023.

3. Ties to Kremlin’s aggression against Ukraine

Leonid Mikhelson repeatedly reaffirms his commitment to Putin’s political regime and participates in all business events organized by the Kremlin. On February 24, 2022, he attended Putin’s meeting with businessmen and regularly participated in the Kremlin-supported St. Petersburg International Economic Forum and other high-level business meetings. He and Putin often go together on international work trips to numerous countries, including China.

Mikhelson is directly involved in Russia’s war effort against Ukraine. According to the Russian exiled media Vazhnye Istorii, Novatek supplies gas to the Ministry of Defence, the Ministry of Internal Affairs and defence enterprises of the Russian Federation. Novatek’s structures support the Russian occupiers through the Muzhestvo Foundation and pay Russian army contractors 200-300 thousand rubles per month in addition to payments from the Ministry of Defence. Because of affiliation with Novatek’s projects in Russia, TotalEnergies was also accused of being complicit in supplying fuel to the Russian military. Since the beginning of the war civil society organizations have protested against continued deliveries of oil and gas from Novatek’s projects by tankers to Europe, accusing the company and its western partners of fueling Russia’s war. 

According to an investigation by the Russian exiled media outlet Proekt, Novatek also supplies gas to Russia’s Ministry of Defense and defense enterprises, including the Sverdlov Plant, which produces explosives and munitions, such as the FAB-500 bombs used in Ukraine. Novatek also provides gas to Sevmash, a submarine manufacturer, and the Zababakhin Institute, which specializes in nuclear weapons production.

Proekt also found that Sibur has been involved in supplying materials like styrene and diethylene glycol to the Kamensk Chemical Plant, which produces solid rocket fuel and engines for rocket launcher systems such as Grad, Smerch, and Uragan. Additionally, Sibur provides styrene and butyl acrylate to the Perm Powder Plant, which manufactures rocket charges, air defense systems, missile launch systems, and powders for small arms.

4. Carbon footprint and environmental damage

Novatek contributes and banks on global warming in the Arctic: Novatek’s operations, particularly through its large-scale LNG projects in the Russian Arctic, contribute significantly to greenhouse gas emissions and environmental degradation. The Yamal LNG project, located in the fragile Arctic region, has raised concerns over its environmental impact due to the potential for damage to local ecosystems. The extraction, liquefaction, and transport of LNG are carbon-intensive processes, contributing to climate change. Furthermore, the construction of pipelines and infrastructure in the Arctic threatens permafrost stability, which, if disturbed, could release even more greenhouse gases into the atmosphere.

The Yamal LNG project is located in the Arctic Circle, an area that is warming rapidly. Climate activists from Bellona argued that the project is banking on the thawing of the Arctic to be profitable. The permafrost beneath the tundra is thawing so quickly that the landscape is collapsing. Huge sinkholes have opened up, making it dangerous for the Nenets people and their reindeer to migrate through the area. 

Novatek ruins the livelihood of the Yamal Indigenous people: the gas infrastructure for the Yamal LNG project has created obstacles for the Indigenous Nenets people and ruined their way of life. The gas companies, like Novatek, have built roads, pumping stations, wells, and pipelines that have taken over large areas of pasture, and the local officials silence any protests.

Damage to the environment, including nature reserves: Novatek gets access to all territories in the Arctic that it wants, including protected nature reserves at the drop of a letter from the Kremlin. As a result of the heavy construction activity, seismic disturbance and disruption to their feeding ecosystem, the people of Yamal report damage to the onshore environment and that almost all the fish have disappeared from the gulf of Ob and surrounding lakes. According to the Barents Observer, Novatek and other gas companies have pressured state authorities to redraw the boundaries of the nature reserve on numerous occasions to allow their gas projects to go forward. 

5. Select crimes and abuses attributed to Mikhelson

1. Business expansion through corrupt relations with officials and deals with Kremlin-connected insiders: Leonid Mikhelson’s rise and Novatek’s growth are closely tied to his reportedly corrupt relationships with key Russian officials and powerful business partners. In the 1990s, Mikhelson formed a partnership with Iosif Levinson, gaining access to valuable gas assets in the Yamal-Nenets Autonomous Okrug, which became the foundation of Novatek. Over time, Mikhelson also forged ties with Gennady Timchenko, a key member of Putin’s inner circle, which helped him expand his business empire, including the acquisition of the petrochemical giant Sibur, Novatek through insider deals, and unprecedented tax favours and subsidies (as reported by Russian opposition experts in 2011 and 2018) from the Russian state for Mikhelson’s hydrocarbon projects. These relationships have allegedly provided Mikhelson and Novatek with political support and preferential treatment from regional leaders, further aiding his business success and privileged position in Kremlin circles.
   
   
2. Facilitating Putin’s “wallets” and slush funds: with Mikhelson’s facilitation two members of Putin’s inner circle, Gennady Timchenko and Pyotr Kolbin, late childhood friend of Putin, appeared to play a role in bringing Novatek under Kremlin’s control, making huge profits in the process. Vladimir Putin may have earned $1.12 billion from the resale of shares in the major Yamal LNG project with the help of these insiders. The money went to an offshore company whose beneficiary is believed to be Putin. This same entity reportedly financed the construction of the yacht Graceful for Putin. The formal owner of the offshore company was Kolbin, who has been termed as “Putin’s wallet”.
   
   In 2023, The Insider published the report mentioned above on Sibur’s continued exports to Europe and called the company’s profits a slush fund of Putin’s cronies.

3. Encouraging tax evasion and sanction evasion practices: Novatek has been caught by investigative journalists exploiting Western financial system to secretly register aircraft. 

While no direct influence of Mikhelson was claimed, a long-time close US manager of Mikhelson at Novatek and CFO of the company for many years was sentenced to years in prison for tax evasion. It is difficult to imagine Mikhelson had zero knowledge about this for years of joint work.

Relatives and associates of Iosif Levinzon, a close partner of Leonid Mikhelson and former governor of the Yamal-Nenets region, as well as an alleged co-founder of Novatek, reportedly assisted Andrey Patrushev, the younger son of Nikolay Patrushev, former Secretary of the Security Council, in advancing his offshore hydrocarbon projects in Russia despite Western sanctions. In February 2022, Norwegian media and the Dossier Center investigated this Kremlin-linked network, uncovering how they allegedly aided Andrey and his companies in circumventing these sanctions. Again no direct involvement of Mikhelson was reported but it is again difficult to imagine he did not know about this sanction evasion practices.