The rationales and effects of ship-to-ship transfers of Russian LNG
A small fishing port named Honningsvåg on Magerøya Island in Norway became witness to 122 ship-to-ship (STS) LNG transfers amounting to 8.7mmt between November 2018 and June 2019. These vessels are among the largest in the world, dwarfing their local cousins with 300-metre-long hulls that carry topsides close to 30 metres high. Their size and the careful handling required by their cargo made these transfers delicate affairs, not unlike mid-air refuelling. Alas, the curtain fell on this dance of giants last month, when the last two Honningsvåg transfers took place from the Rudolf Samoylovich and the Nikolay Zubov to the Yenisei River and the SCF Melampus, respectively, on 27th June. The Norwegian permit allowing for these transfers expired shortly after on 30th June. Accordingly, we are not expecting any STS further operations at Honningsvåg.
Novatek, the Russian company operating Yamal LNG, had confirmed as early as April 2019 that STS operations in Norwegian waters were about to end; they were always intended as a stop-gap measure until a more permanent solution were found. As it happened, they saw a brief revival in May before going into full retreat in June, our data shows.
However, Yamal LNG would struggle to operate without STS transfer opportunities, mostly owed to the plant’s location within the arctic circle, where except for a brief period between July and October shipping lanes are under constant threat of pack ice dense and strong enough to severely damage ordinary LNG carrier (LNGC) hulls. To cope with that obstacle Yamal ordered a dedicated fleet of Arc-7 LNGCs with reinforced, icebreaker-like bows, but which do not make much speed due to their design and having to plough through thick ice, and which are therefore expensive to operate on a per-unit basis. Transferring cargo onto more nimble vessels thus constitutes an economic imperative for Russian arctic LNG supply.
To compound matters in November, Yamal LNG started the third train almost one year ahead of schedule – something not usually associated with greenfield LNG developments – whilst the company’s fleet of dedicated Arc-7 LNG LNGCs had not been (and still is not) fully operational. Eight icebreaking LNGCs have yet to join Novatek’s fleet, a process we expect will take at least another year to complete, resulting in a protracted mismatch between production capacity and logistics. Production from large-scale LNG plants like Yamal LNG cannot easily be slowed down – not least because they front vast gas field infrastructure – and in that respect operate akin to nuclear power stations.
As far as stop-gap measures go, the Honningsvåg contract with Norwegian STS facilitator Tschudi Arctic Transit AS was successful, supporting Yamal LNG’s production ramp-up over the past eight months. However, Yamal only resorted to LNG transfers at Honningsvåg because Russian law only recently established a permit zone for foreign registered LNGCs – which includes Novatek’s Arc-7 fleet – to operate in certain Russian coastal waters. Future STS operations involving Yamal LNG are thus likely to materialise around Kildin Island close to Murmansk, which has been expressly included in the new law and is the only sizeable port within the permit zone where the Gulf Stream still manages to keep pack ice at bay. The island lies along the usual route Yamal’s ice-breaking LNG fleet has hitherto taken when sailing for Europe, including previously the Sarnesfjord and the Kåfjord areas at Honningsvåg. This in turn means Norwegian investors who had hoped to ride a rising wave of Russian LNG into Europe will have to turn elsewhere, as proposed fixed STS infrastructure in Kirkenes would be superfluous.
In terms of supply, we anticipate Yamal LNG’s exports to drop slightly, although not to the level of exports before November 2018 as Novatek’s fleet capacity has continued to grow. Nevertheless, whilst summer conditions currently allow conventional LNGCs to reach Yamal’s facilities at Sabetta, their journeys have become longer whilst the Arc-7 carriers travel at slower speeds. Moreover, two Arc-7 LNGCs, the Eduard Toll and the Vladimir Rusanov, have also started to embark on long journeys to Dalian LNG and Tianjin LNG in China, which will entail equally long ballast journeys. We only anticipate LNG transfers to return in later October, when Novatek’s new permit for LNG transfers in Russian coastal waters will become effective.Previous:
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