Novatek's Arctic LNG-2 will begin shipments no earlier than March

By Rhod Mackenzie

According to Kommersant, NOVATEK will not be able to start 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 the project, with buyers so far refusing to accept cargoes. NOVATEK will not use the fleet from its other project, Yamal LNG, for deliveries 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 tonnes of LNG in 2024, with a new line capacity of 6.6 million tonnes.
The first batch of LNG from NOVATEK's new Arctic LNG-2 project could be shipped in March at the earliest.

The start of deliveries depends on when the project receives the first Arc7 tanker from the South Korean shipyard Hanwha Ocean (formerly DSME), Kommersant's sources familiar with the situation say.

According to them, the tanker remains in Korea for the time being, and even if it leaves the yard in the near future, its journey to Gydan will take about a month. Only after its arrival can the possibility of selling LNG cargoes on the spot market in Asia be discussed. Although Arctic LNG-2 has long-term gas supply contracts, buyers refuse to accept cargoes from the project, which is on the US SDN list.
At the end of January, Deputy Prime Minister Alexander Novak reported that the first cargo of LNG from Arctic LNG-2 could be shipped in February. "According to the company's information, it's probably around February," he said. NOVATEK did not respond to Kommersant.

Using the fleet of Arc7 tankers from NOVATEK's Yamal LNG pilot project to transport Arctic LNG-2 cargo is impossible, according to Kommersant's sources.

Yamal LNG has its own strict delivery schedule, and diverting tankers to Arctic LNG-2 contradicts the interests of the project's other shareholders - France's TotalEnergies (20%) and China's CNPC (20%) and SRF (9.9%). Previously, analysts believed that NOVATEK could use the Yamal LNG fleet to deliver Arctic LNG-2 cargoes to the Murmansk and Kamchatka transshipment points.
Following the imposition of sanctions, NOVATEK declared force majeure on sales of LNG from its portfolio to Arctic LNG 2. The project's foreign shareholders - France's TotalEnergies, China's CNPC and CNOOC, and Japan's Mitsui and JOGMEC consortium - also declared force majeure under their contracts. US sanctions prohibit any transactions with Arctic LNG 2, including payments for gas.

The project's first train, with a capacity of 6.6 million tonnes, is completing commissioning and has already started producing its first LNG. However, the line's productivity is hampered by limited shipping capacity due to a shortage of ice-class tankers.

The situation could change radically if the project's foreign shareholders obtain exemptions from the application of sanctions from the US authorities: in particular, CNPC and CNOOC are reported to be ready to initiate this process.

As TotalEnergies CEO Patrick Pouyanné said on 7 February, European consumers still need NOVATEK LNG, but supplying more Russian fuel to Europe is "politically difficult". "As far as I understand, they (NOVATEK - Kommersant) want to start 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 may only be one or two markets," the TotalEnergies boss concluded. Now two ships, Audax and Pugnax, which previously carried modules for the construction of the first Arctic LNG-2 line, are returning to Murmansk from China.
As Kommersant wrote on 25 December 2023, Arctic LNG-2 may receive a maximum of six Arc7 tankers this year, all from a South Korean shipyard. Three of them will be owned by Sovcomflot, and the other three by Japan's Mitsui OSK Lines (MOL). As MOL chief Takeshi Hashimoto told Bloomberg in an interview on 6 February, the company will no longer be able to charter gas carriers for Arctic LNG 2 after the sanctions are imposed, so it plans to sell them to the project operator. "Our contractual obligation is that if we cannot provide services to Arctic LNG 2, we have to sell our Arctic LNG 2 vessel. However, there are restrictions (US sanctions - Kommersant ) according to which we cannot make such a deal. So it's a bit difficult," he explained. Mr Hashimoto noted that his company was working with the US and Japanese governments to find a solution to the problem.
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 will remain essentially the same. NOVATEK will therefore need to optimise shipping as much as possible and increase the number of transhipments. "The use of other shipping solutions, including those involving companies that have not been used before, should be considered in order not to stretch logistics beyond the permissible limit," he believes.

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.

Assuming that the tankers from South Korea will be delivered evenly throughout the year, NOVATEK will be able to export up to 2 million tonnes of LNG from Arctic LNG-2 this year, according to Kommersant's estimates.
The opening of the Northern Sea Route will shorten the delivery time to China, he points out, but before next winter NOVATEK will definitely have to find more shipping options than it currently has. One possible solution would be to attract a third-party fleet to transport Yamal LNG gas. "Considering that the tanker LNG Geneva, nominally owned by Gunvor, was recently used by NOVATEK for the first time, I would not be surprised if the company takes on time charter vessels from international traders," Victor Katona sums up.