Yamal LNG has 15 Arctic icebreaking LNG tankers and several “normal” ice class ships built and operational. The prospects of Arctic 2 LNG project are uncertain due to sanctions and nobody knows when it may start production and need icebreaking LNG carriers for production offtake. It’s not “the world needs ice class LNG tankers - it’s Novatek who needs them”.
Thanks for your valuable comment. You raise a valid point.
Ice-class LNG carriers are needed for the North Sea route, which transports LNG from the Yamal Peninsula to the EU and Asia. Due to geopolitical fragmentation, the importance of the North Sea route and the West Siberian Petroleum Basin arises.
I agree that Novatek and its JV partners need ice-class LNG carriers. Nevertheless, LNG demand globally is projected to grow, so the role of Russian LNG exports will not diminish; it will shift only its direction to Asia. Tonne-mile demand for ice-class ships will rise accordingly.
Exports of Russian LNG from Arctic to Asia is the mostly challenging in in terms of scheduling and ton-mile demand. Arctic icebreaking ships may go from Yamal to Asia using NSR as the shortest route during 6-7 months (from June/July till December/January), while during the remaining months when the NSR is closed, a huge number of non-ice class ships are required to sail between Murmansk area (where they get LNG from Arctic ships) and Asia Pacific via Cape of Good Hope and back. This fluctuation of demand for tonnage during calendar year is enormous and it’s hard to play it now.
An excellent point about seasonality and demand fluctuations.
My bet is based on a long-term (18-24 months) shortage of ice-class LNG carriers, not on seasonal fluctuations. I assume LNG transfers to Asia will rise over that period due to disrupted supply chains, higher LNG demand growth in the East, and additional sanctions on Sovcomflot/Russian LNG. Seasonality is just the icing on the cake.
Of course, with my thesis, there are multiple risks: a global recession causing steep LNG demand contraction; severe sanctions completely blocking the operations of Yamal and Artic 2; a sudden decline in geopolitical tensions, so supply chains and energy security are no more significant issues.
Those are the known unknowns. However, the unknown unknowns are always present and ready to sabotage even the best-articulated thesis.
It’s not clear, where exactly the shortage of ice-class LNG tankers comes from. Yamal LNG has its own fleet working for many years and will rather needs non-ice-class ships for running between Murmansk and Asia via CoGH. Arctic2 LNG can’t start production because it can get neither Arctic ice-breaking newbuild/ordered ships from S.Korea or Zvezda shipyard nor existing “standard” ice-class LNG tankers at any money due to sanctions.
I expect shortages of ice-class LNG due to Novatec's inability to source new vessels. They have to play the game with their own fleet and hire what is available on the market.
On the other hand, I assume Artic 2 may start production before they get the required LNG carriers. The reason for that is the role of non-Russian shareholders: Total Energy, CNPC, CNOOC, and Japan Artic. France, China, and Japan need LNG, so Artic 2 appears to be the solution.
It's a hen and egg game. Artic 2 comes first, followed by the ice-class LNGs or vice versa. I bet on the former, knowing my thesis may be wrong.
Novatek's inability to source new ice-class vessels already prohibited Arctic 2 to start and forced to declare Force Majeure. Arctic 2 project may not (and will never) start production until it gets ships ready for off-taking production - it's not a bet, it's just how industry operates according to rules of common sense - nobody produces anything unless he/she knows how buyer gets access to this product and pays for it.
Non-Russian shareholders can't do anything here because several (both listed and private) owners of several existing and fully employed ice-class (not Arctic ice-breaking) ships will not sell any LNG tanker to Arctic 2 or Novatek due to sanctions and payment risks, and ordering new ships by Novatek now for getting them in 2028-2029 doesn't make sense.
A lot of countries need LNG, but they need cheap, legally clear and hassle-free LNG, not LNG associated with the risk of sanctions, payment difficulties etc.
Btw, how can you bet on something that doesn't really exist, like uncommitted ice-class LNG ships promptly available for chartering by Novatek?
Yamal LNG has 15 Arctic icebreaking LNG tankers and several “normal” ice class ships built and operational. The prospects of Arctic 2 LNG project are uncertain due to sanctions and nobody knows when it may start production and need icebreaking LNG carriers for production offtake. It’s not “the world needs ice class LNG tankers - it’s Novatek who needs them”.
Thanks for your valuable comment. You raise a valid point.
Ice-class LNG carriers are needed for the North Sea route, which transports LNG from the Yamal Peninsula to the EU and Asia. Due to geopolitical fragmentation, the importance of the North Sea route and the West Siberian Petroleum Basin arises.
I agree that Novatek and its JV partners need ice-class LNG carriers. Nevertheless, LNG demand globally is projected to grow, so the role of Russian LNG exports will not diminish; it will shift only its direction to Asia. Tonne-mile demand for ice-class ships will rise accordingly.
A recent article on LNG exports via NSR:
https://gcaptain.com/russian-lng-shipments-via-arctic-resume-easing-red-sea-and-sanctions-constraints/
Exports of Russian LNG from Arctic to Asia is the mostly challenging in in terms of scheduling and ton-mile demand. Arctic icebreaking ships may go from Yamal to Asia using NSR as the shortest route during 6-7 months (from June/July till December/January), while during the remaining months when the NSR is closed, a huge number of non-ice class ships are required to sail between Murmansk area (where they get LNG from Arctic ships) and Asia Pacific via Cape of Good Hope and back. This fluctuation of demand for tonnage during calendar year is enormous and it’s hard to play it now.
An excellent point about seasonality and demand fluctuations.
My bet is based on a long-term (18-24 months) shortage of ice-class LNG carriers, not on seasonal fluctuations. I assume LNG transfers to Asia will rise over that period due to disrupted supply chains, higher LNG demand growth in the East, and additional sanctions on Sovcomflot/Russian LNG. Seasonality is just the icing on the cake.
Of course, with my thesis, there are multiple risks: a global recession causing steep LNG demand contraction; severe sanctions completely blocking the operations of Yamal and Artic 2; a sudden decline in geopolitical tensions, so supply chains and energy security are no more significant issues.
Those are the known unknowns. However, the unknown unknowns are always present and ready to sabotage even the best-articulated thesis.
It’s not clear, where exactly the shortage of ice-class LNG tankers comes from. Yamal LNG has its own fleet working for many years and will rather needs non-ice-class ships for running between Murmansk and Asia via CoGH. Arctic2 LNG can’t start production because it can get neither Arctic ice-breaking newbuild/ordered ships from S.Korea or Zvezda shipyard nor existing “standard” ice-class LNG tankers at any money due to sanctions.
I expect shortages of ice-class LNG due to Novatec's inability to source new vessels. They have to play the game with their own fleet and hire what is available on the market.
On the other hand, I assume Artic 2 may start production before they get the required LNG carriers. The reason for that is the role of non-Russian shareholders: Total Energy, CNPC, CNOOC, and Japan Artic. France, China, and Japan need LNG, so Artic 2 appears to be the solution.
It's a hen and egg game. Artic 2 comes first, followed by the ice-class LNGs or vice versa. I bet on the former, knowing my thesis may be wrong.
Novatek's inability to source new ice-class vessels already prohibited Arctic 2 to start and forced to declare Force Majeure. Arctic 2 project may not (and will never) start production until it gets ships ready for off-taking production - it's not a bet, it's just how industry operates according to rules of common sense - nobody produces anything unless he/she knows how buyer gets access to this product and pays for it.
Non-Russian shareholders can't do anything here because several (both listed and private) owners of several existing and fully employed ice-class (not Arctic ice-breaking) ships will not sell any LNG tanker to Arctic 2 or Novatek due to sanctions and payment risks, and ordering new ships by Novatek now for getting them in 2028-2029 doesn't make sense.
A lot of countries need LNG, but they need cheap, legally clear and hassle-free LNG, not LNG associated with the risk of sanctions, payment difficulties etc.
Btw, how can you bet on something that doesn't really exist, like uncommitted ice-class LNG ships promptly available for chartering by Novatek?