Russia's Arctic LNG 2 suspends gas liquefaction amid sanctions, lack of tankers, sources say

Hanwha Life Insurance

02/04/2024 16:01

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      Russia and Arctic LNG 2 hit by Western sanctions
    

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      Gas tankers not available for Arctic LNG 2
    

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      The project has slashed gas output in recent month - media
    

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      Train one to be shut until at least June - source
    

  
    By Marwa Rashad and Vladimir Soldatkin
       LONDON/MOSCOW, April 2 (Reuters) - Novatek  NVTK.MM ,
Russia's largest producer of liquefied natural gas (LNG), has
suspended production at its Arctic LNG 2 project due to
sanctions and a shortage of gas tankers, two sources familiar
with the matter told Reuters on Tuesday.
    The project had been hoping to start commercial deliveries
in the first quarter of this year. But plans were complicated
last year when it was included in Western sanctions over
Russia's conflict in Ukraine, prompting foreign shareholders to
freeze participation and Novatek to issue a force majeure. 
    The decision to suspend converting natural gas to LNG is a
blow to Russia's goal to capture a fifth of the global LNG
market by 2030-2035. It is currently the world's fourth-largest
LNG producer with annual exports of 32.6 million metric tons.
    Novatek, which started tentative LNG production at the first
of the plant's planned three trains in December, did not reply
to a request for comment.
    "Train one will remain shut until at least the end of June,"
one of the sources told Reuters, adding that construction
activities for the project were still ongoing. 
    The other two trains are due to be delivered to the site by
sea in future from the port of Murmansk. The three trains are
together targeted to produce 19.8 million metric tons per year
of LNG and 1.6 million tons per year of stable gas condensate.
    The sources said the main problem was a lack of specialist
tankers capable of transporting LNG - which is cooled to minus
163 degrees Celsius (minus 261.4 Fahrenheit) - and cutting
through thick sea ice. 
    Separately, the Vedomosti newspaper said on Tuesday that
natural gas output at the project had fallen sharply to 83
million cubic metres (mcm) in February due to a delay in the
start of LNG shipments. 
    The sources said production had been 425 mcm in December and
250 mcm in January.
    
    TANKERS 
    Russia faces challenges in getting specialist gas tankers. 
    According to Novatek, 15 Arc7 ice-class tankers, able to cut
through 2-metre thick ice, will be built at Russia's Zvezda
shipyard for Arctic LNG 2.
    Six more Arc7 tankers were due to be built by Hanwha Ocean,
formerly Daewoo Shipbuilding & Marine Engineering, including
three for Russia's leading tanker group Sovcomflot  FLOT.MM  and
three for Japan's Mitsui O.S.K. Lines.
    However, the three tankers ordered by Sovcomflot were
cancelled due to the sanctions against Russia, Hanwha said last
year in regulatory filings.
    Ice-class tankers usually have double hulls - strengthened
structures to withstand the pressure of ice - and reinforced
propellers.
    So far, only three suitable gas tankers have been built for
Arctic LNG 2, according to public information: the Alexei
Kosygin, Pyotr Stolypin and Sergei Witte vessels.
    Russian Deputy Prime Minister Alexander Novak, responding to
a question on when the first LNG cargo would be delivered from
the project, said on Friday that "the company is dealing with
the issues, corresponding talks are under way".
    "Their main problem is with the tankers," he added.
    Ronald Smith, a senior oil and gas analyst at Moscow-based
BCS brokerage, said it was unclear when - or even if - the
project could get the tankers. 
    "Novatek is very well managed and may find a work-around to
get completed ships transferred to the project somehow in the
near future, or those ships may remain stuck in shipyards for an
extended period of time," he said. 
    Arctic LNG 2 is led by Novatek, which holds a 60% stake. The
 other shareholders are France's TotalEnergies  TTEF.PA ,
China's CNPC and CNOOC, and Japan Arctic LNG - a consortium of
Mitsui & Co, Ltd.  8031.T  and JOGMEC - each holding a 10%
stake.
    Mitsui declined to comment and TotalEnergies referred
comments to Novatek. The other shareholders were not immediately
available to comment.

 (Reporting by Marwa Rashad, Vladimir Soldatkin and Oksana
Kobzeva; Additional reporting by America Hernandez, Katya
Golubkova and Yuka Obayashi; Editing by Mark Potter)
 ((vladimir.soldatkin@thomsonreuters.com; twitter:
@vsoldatkin;))