Mounting Evidence Shows Russia Assembling Pieces for Potential LNG ‘Dark Fleet’

By Malte Humpert (gCaptain) –

Signs of a Russian effort to ready an Arctic LNG “dark fleet” continue to mount. 

An increasing number of ship-to-ship transfers at the country’s Kildin anchorage, a record-amount of Arctic permits for LNG carriers, and recent activity on the newbuild and secondhand market, support speculation by industry insiders of an impending “dark fleet” on the LNG side.

With the country’s latest and largest LNG project, Arctic LNG 2, under sanctions by the United States, the European Union, and United Kingdom, Novatek has been unable to deliver any product to the market for the past six months. 

As Arctic sea ice recedes heading into summer season questions mount aboard which vessels and to whom it will be able to sell its product. 

Meanwhile LNG continues to flow at record-levels to Europe from the thus-far unsanctioned neighboring Yamal LNG project.

On Wednesday ice-capable and conventional LNG carriers Nikolay Urvantsev and Lena River completed another ship-to-ship transfer at the Kildin anchorage in sheltered waters north of Murmansk.

Novatek, Russia’s largest LNG producer, has conducted dozens of offshore reloading operations for its Yamal LNG project at the anchorage since establishing it in November 2020.

Last year’s figure of 13 transfers has already been surpassed by the middle of this year. Between Jan 1 and April 30 Kildin saw ten transfers with at least five more since then. 

Prior to utilizing the Kildin location, Novatek and its shipping partners also conducted dozens of STS operations between 2018-2020 in Norwegian waters off the coast of Honningsvåg near the North Cape. 

Technical and logistical support at the time was provided by Western companies. Operations at Kildin are managed internally pointing to a growing expertise in the reloading of LNG.

With this week’s announcement of an EU-wide transshipment ban for Russian LNG coming into effect in 2025 ship-to-ship transfers, in Russian or international waters, will gain further significance for Novatek. 

“They will have to do more STS transfers,” Flex LNG’s chief executive Oystein Kalleklev commented during last month’s earnings call.

Russia’s Northern Sea Route Authority has issued a record-number of permits to LNG carriers, even before the start of the official start of summer navigation season on July 1. 

A total of 28 LNGCs have thus far been granted permission to sail through the country’s Arctic waters, including nearly a dozen conventional vessels without ice-strengthening or low ice-class carriers. 

The list of vessels contains a number of newcomers to the Arctic, including four vessels recently sold by Nippon Yusen Kabushiki Kaisha (NYK) to a new entity in the UAE. 

Activity on the secondhand market involving older smaller steam-turbine LNG vessels, completes the picture for a potential LNG “dark fleet.” A number of aging vessels have been sold for above-market prices rather than heading for the scrapyard. 

“This could potentially be the beginning of a ‘dark fleet’ on the LNG side,“ commented Kalleklev during the same call. “They will be soaking up some of the steam tonnage that would otherwise be scrapped,” he continued.

Creating a dark fleet on the LNG side, however, may prove more challenging than in the crude oil sector.

Industry leaders point to the much smaller fleet size, limited export and import points, and a shrinking pool of buyers as primary hurdles.

“With LNG shipments originating from a limited number of points, monitoring and tracking vessel movements becomes significantly easier,” explains Mehdy Touil, an LNG Operations Specialist, who in the past worked as a senior operator for Novatek’s Yamal project.

“Finding alternative buyers for ‘off-the-books’ Russian LNG would be extremely difficult,” he continued.

Others, like Kalleklev of Flex LNG, think that a ready pool of buyers does exist. 

“What we have seen in the past is that the Russians have been able to get surprising volumes of hydrocarbons on ships,” Kalleklev said.

“In general, we think that all the cargoes here will be produced, and we will have a similar trading pattern to what we have seen on the product and the oil side, where the BRICS [Brazil, Russia, India, China, South Africa] are supporting each other.”