Russia’s Shadow Fleet Stalls, Leaving 1 Million Cubic Meters of LNG Undelivered

As Russia’s attempt to establish an LNG shadow fleet enters its third month, undelivered cargos continue to stack up aboard LNG carriers and floating storage units. 

Some vessels, including Asya Energy and Pioneer, have been moving closer to prospective buyers in Asia. A third, Nova Energy (formerly New Energy) also looks determined to reach the South China Sea. 

“At this time it still looks like they are all in the doldrums,” says Eikland Energy founder Kjell Eikland. “There are 1 million cubic meters of floating, unsold LNG there.”

Additional loadings have been discharged into Saam and Koryak FSUs. The exact cargo flows are becoming increasingly more difficult to follow as in the case of the likely fake ship-to-ship transfer between Pioneer and Nova Energy at the end of August near the Suez Canal.

“Most of the cargoes have gone through some sort of ship-to-ship transfer,” explains Jason Feer, Head of Business Intelligence, Poten & Partners.

With winter fast approaching the shadow fleet’s situation will not improve anytime soon. “Sea ice has returned, so Novatek faces the dilemma already,” confirms Eikland. And using a limited number of available Arc4 and Arc7 ice-class LNG carriers will only provide temporary relief before the lack of buyers will come to haunt the company again.

“As I have said since December last year, Novatek should mothball the plant, but the question is when Putin also finally recognizes that there is no way out of this,” asserts Eikland. The three vessels currently in Asia will also not be able to return to Arctic LNG 2 via the Northern Sea Route as sea ice begins to block the passage. 

Nearly a dozen LNG vessels have been in holding positions outside Ob Bay and further west in the eastern Barents Sea. They include three of the North-series newbuild carriers, as well as Everest Energy, SCF La Perouse, Mulan, Clean Planet, Clean Horizon, Clean Vision, Lena River, and Yenisei River.

Some of the vessels have not been formally linked to the shadow fleet or been sanctioned and may continue legitimate transport for the unsanctioned Yamal LNG project. Industry analysts have been speculating that the carriers, some with medium ice-classes, will be used as additional temporary floating storage in the weeks and months to come.

The key for continued production at Arctic LNG 2 will be Russia’s ability to find offtakers. Thus far Asia-Pacific buyers have hesitated to touch Russian spot cargos, Feer of Poten & Partners explains. 

“So Novatek will have to find buyers who are willing to take those cargoes. That probably means China and India, mostly. And to get those cargoes in, they will have to offer discounts, as they have in the past.”

However, sharply rising LNG supply in the coming years will further complicate the equation. “This is likely to push prices down, reducing the need for Russian cargoes and making it harder for Novatek to compete,” concludes Feer.

Kjell Eikland concurs: “The economic turnout of this exercise looks more than questionable.”

Updated: October 17, 2024 (Originally published October 16, 2024)

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