US “strike” leaves fate of 6 Russian icebreakers hanging in the balance

Liquefied natural gas (LNG) market participants in both Asia and Europe are seeking answers about the fate of six Arc7 icebreaker LNG carriers currently docked in South Korea, which were originally earmarked for the Arctic LNG 2 project operated by Russia’s Novatek.

The construction of the Arc7 icebreaker LNG carriers, with a capacity of 172,600 m3, is a significant step forward in the liquid cargo carrier newbuilding market. These vessels are highly specialized for operating in ice conditions, making them ideal for transporting LNG from Arctic regions.

However, geopolitical tensions related to the Russia-Ukraine conflict and sanctions imposed on Moscow have left the fate of these vessels hanging in the balance and their future use uncertain, especially as customers shift away from Russian LNG to US and Middle Eastern carriers.

TradeWinds quoted independent LNG expert Mehdy Touil as saying on April 15 that it would be difficult to find other buyers for the ships – three of which are under contract with Mitsui OSK Lines (MOL) and the remaining three under Hanwha Ocean’s ownership after the contract with Russian owner Sovcomflot was canceled.

World - US — Christophe de Margerie is the first of 15 Arc7 icebreaker-capable LNG carriers for Novatek's Yamal LNG project. Photo: Riviera

“The Arc7 vessels are very specialized and expensive,” a shipbroker told consultancy S&P Global on April 17. “Using icebreakers as conventional cargo vessels is not feasible and efficient, so there are not many alternatives.”

Converting Arc7 into floating storage and regasification units (FSRUs) would also be impractical, S&P Global cited several sources as saying, adding that the most viable option is to use them as conventional LNG carriers.

“To me, FSRUs seem like an even worse idea, as there are plenty of older vessels that are perfectly suitable for storage purposes,” said another shipbroker.

Western sanctions and embargoes imposed on Russia in response to its military campaign in Ukraine have prevented the icebreakers from sailing. However, according to some market sources, Russian LNG shipments may continue in the long term, allowing the vessels to reload in Arctic waters.

“As far as I know, the US is trying to impose sanctions on a project to limit Russian supply,” said a shipbroker in Asia. “I think these vessels could be integrated into the system due to emissions regulations, leading to the phasing out of older vessels.”

Earlier this year, the US imposed sanctions on Russia's state-backed Zvezada shipyard and shipbuilding complex, which builds ships for Russian private energy giant Novatek's Arctic LNG 2 project in the Arctic.

Other market sources in the Atlantic basin also agree that the global market will eventually return to Russian LNG, arguing that Russia remains a significant LNG exporter.

“You cannot avoid Russia in the long term,” said a European shipbroker. “China and India are still big customers for Russian LNG . ”

Minh Duc (According to S&P Global, TradeWinds)

Source