NOVATEK will not be able to begin LNG shipments from Arctic LNG-2 before March

According to Kommersant, NOVATEK will not be able to begin shipping LNG from the Arctic LNG-2 project before March, waiting until the project fleet is replenished with at least one Arc7 ice-class LNG tanker. US sanctions are significantly slowing down the project, since buyers are so far refusing to accept cargo. NOVATEK will not attract the fleet from its other project, Yamal LNG, for shipments from Arctic LNG-2. The company expects to receive six tankers from South Korean shipyards by the end of the year, which will transport Arctic LNG-2 gas. According to Kommersant’s calculations, in an optimistic scenario, these ships will allow exporting up to 2 million tons of LNG in 2024 with a new line capacity of 6.6 million tons.

The first batch of LNG from NOVATEK’s new Arctic LNG-2 project could be shipped in March at the earliest. The start of shipments depends on when the project receives the first Arc7 tanker from the South Korean shipyard Hanwha Ocean (formerly DSME), Kommersant sources familiar with the situation say. According to them, the tanker remains in Korea for now, and even if it leaves the shipyard in the near future, its journey to Gydan will take about a month. Only after its arrival can we talk about the possibility of selling LNG cargoes on the spot market in Asia. Although Arctic LNG-2 had long-term contracts for gas supply, buyers refuse to take cargo from the project included in the US SDN-list.

At the end of January, Deputy Prime Minister Alexander Novak reported that the first batch of LNG from Arctic LNG-2 could be shipped in February. “According to the information the company gives, it’s probably around February,” he said. NOVATEK did not answer Kommersant.

Using the fleet of Arc7 tankers from NOVATEK’s Yamal LNG pilot project to transport Arctic LNG-2 cargo, according to Kommersant’s interlocutors, is impossible. Yamal LNG has its own strict shipment schedule, and the redirection of tankers to Arctic LNG-2 contradicts the interests of the other shareholders of the project – the French TotalEnergies (20%) and the Chinese CNPC (20%) and SRF (9.9%). Previously, analysts assumed that NOVATEK could use the Yamal LNG fleet to deliver Arctic LNG-2 cargo to transshipment points in Murmansk and Kamchatka.

Following the imposition of sanctions, NOVATEK issued a notice of force majeure to buyers regarding sales of LNG from its portfolio to Arctic LNG 2. The foreign shareholders of the project – the French TotalEnergies, the Chinese CNPC and CNOOC and the consortium of the Japanese Mitsui and JOGMEC – also declared force majeure under their contracts. US sanctions prohibit any transactions with Arctic LNG 2, including payments for gas.

The first train of the project with a capacity of 6.6 million tons is completing commissioning and has already begun producing the first LNG. However, the line’s productivity will be hampered by limited shipping capacity due to a shortage of ice-class tankers. The situation could change radically if the foreign shareholders of the project obtain exceptions from the application of sanctions from the US authorities: in particular, it was reported that CNPC and CNOOC are ready to initiate this process.

As the head of TotalEnergies, Patrick Pouyanne, said on February 7, European consumers continue to need NOVATEK LNG, but supplying more Russian fuel to Europe is “politically difficult.” “As far as I understand, they (NOVATEK.— “Kommersant”) want to launch the second stage (of the project). The third stage, as I understand it, has been suspended. Where is the market (for the project)? Not in Europe. There are perhaps only one or two markets,” concluded the head of TotalEnergies. Now two vessels Audax and Pugnax, which previously carried modules for the construction of the first Arctic LNG-2 line, are again moving from China to Murmansk.

As Kommersant wrote on December 25, 2023, Arctic LNG-2 may receive a maximum of six Arc7 tankers this year, all from a South Korean shipyard. The shipowner of three of them should be Sovcomflot, and three more – the Japanese Mitsui OSK Lines (MOL). As the head of MOL, Takeshi Hashimoto, said in an interview with Bloomberg on February 6, the company, after the imposition of sanctions, can no longer charter gas carriers for Arctic LNG 2, so it plans to sell them to the project operator. “Our contractual obligation is that if we are unable to provide services to Arctic LNG 2, we must sell our Arctic LNG 2 vessel. However, there are restrictions (US sanctions.— “Kommersant”) according to which we should not enter into such a deal. So it’s a little difficult,” he explained. Mr. Hashimoto noted that his company is working with the US and Japanese governments to find a solution to the problem.

Tankers from the Zvezda shipyard, which is supposed to build a total of up to 15 ships for Arctic LNG-2, will not be delivered this year, Kommersant’s sources among shipbuilders say.

If we assume that tankers from South Korea will be transferred evenly throughout the year, NOVATEK, according to Kommersant estimates, will be able to export up to 2 million tons of LNG this year from Arctic LNG-2.

According to Kpler’s Victor Katona, the main problem for Novatek is that the company’s liquefaction train capacity will increase by 30% with the launch of the first Arctic LNG 2 train, but the number of tankers remains essentially the same. Therefore, NOVATEK will have to optimize shipping as much as possible and increase the number of transshipments. “The use of other shipping solutions, including those involving companies that have not previously been used, should be considered in order not to stretch logistics beyond the permissible limit,” he believes.

With the launch of navigation along the Northern Sea Route, the delivery time to China will be reduced, he reminds, but before next winter NOVATEK will definitely have to find more shipping options than it currently has. A possible solution would be to attract a third-party fleet to transport Yamal LNG gas. “Given the tanker LNG Geneva, nominally owned by Gunvor, which NOVATEK used for the first time recently, I would not be surprised if the company took on time charter vessels from international traders,” sums up Victor Katona.

Tatiana Dyatel