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Christophe de Margerie LNG carrier

Stock Photo: The icebreaking LNG carrier Christophe de Margerie. Photo: Koptyaev Igor / Shutterstock.com

Unclaimed Arctic Gas Carriers Threaten Russia’s LNG Expansion

Bloomberg
Total Views: 11170
March 5, 2024

(Bloomberg) —

Ever-tighter sanctions against Moscow have left a South Korean shipbuilder struggling to find buyers for specialized vessels intended to serve Russia’s newest liquefied natural gas facility, threatening to delay exports from the Arctic project.

Russia’s Sovcomflot PJSC had ordered the vessels, specifically tailored for use at Novatek PJSC-led Arctic LNG 2 export plant above the Arctic circle, in 2020, but the contract was terminated after the invasion of Ukraine, and ownership reverted to the shipbuilder.

South Korea’s Hanwha Ocean Co. said this week by telephone that it was still seeking an alternative shipping company eager to take the icebreaker-class gas carriers. The process was taking longer than usual due to the specialized nature of the ships, it said.

Hanwha said Western restrictions were not specifically to blame for the time lag. Any buyer, however, would have to agree to work with Russia — effectively the only market where icebreaker LNG vessels are required to navigate frigid northern waters — and most likely on a project sanctioned by Washington last year. 

The US imposed specifically targeted restrictions on the operator of the Arctic LNG 2 export plant in November, all but forcing out investors including France’s TotalEnergies SE and Japan’s Mitsui & Co., which have both declared force majeure. 

Until a new owner is found, no vessels can be launched, making it challenging for the Arctic facility to export the LNG it began producing in December. Russia, eager to expand LNG exports to replace once-core European markets, had most recently aimed to begin exports as soon as this month.

“Ice-breaking tankers are essential, especially for the Arctic LNG 2 project, which will send LNG to Asian countries,” said Herve Baudu, a senior lecturer of nautical sciences at the French Maritime Academy. “With the US sanctions, Novatek is finding it very difficult to recover the tankers built by the Koreans. So, Russia is in a bind.”

Novatek, which has a 60% stake in Arctic LNG 2, did not respond to requests for comment.

Arctic LNG 2 is a key plank of Russia’s efforts to cope with the dramatic decline of pipeline gas deliveries to Europe since 2022 by boosting LNG exports, hoping to capture new markets. Moscow aims to expand LNG exports three-fold by the end of the decade.

But the icebreaker ships required for the expansion have turned into a major headache.

Hanwha Ocean continues to hold three key vessels — Pyotr Kapitsa, Leve Landau and Zhores Alferov — in shipyards in South Korea.

Three of the other ships which Hanwha Ocean is building are owned by Mitsui OSK Lines Ltd, which said last month that it could no longer charter the ships to the Arctic LNG 2 project as planned because of sanctions, and is figuring out how to sell them. The first of that batch of vessels will finish construction later this year.

Novatek does have an existing fleet of icebreaker vessels, but those are already chartered to customers and being used to ferry LNG from the unsanctioned Yamal export plant, said the French Maritime Academy’s Baudu. 

Russia is attempting to find its own solution. The first three icebreaker LNG carriers to be built domestically — Sergei Witte, Pyotr Stolypin, Alexey Kosygin — were completed at the Zvezda shipyard, sanctioned last month. Those could eventually be used to export gas from Arctic LNG 2, but are not indicating travel to the facility. They would also still leave Novatek far short of the fleet it will ultimately need.

© 2024 Bloomberg L.P.

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