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Something is happening at Honningsvåg

Previous reports suggested future ship-to-ship transfers close to Murmansk, but Yamal LNG seems still in the process of sorting winter STS location

The ice-free, deep-water port Honningsvåg on Magerøya Island in Norway close to the Russian border became witness to 123 ship-to-ship (STS) LNG transfers amounting to c. 8.2mmt between November 2018 and June 2019. Today, the first Yamal vessel since July has anchored at one of Honningsvåg’s STS sites.

Temporary provisions forced by necessity

Russia’s second largest gas exporter – Novatek – had announced in 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.

New Russian law should have alleviated shipping impasse

These STS LNG transfers became necessary partly because Russian law did not allow foreign-owned vessels to operate in certain Russian coastal regions until recently. LNG carriers (LNGCs) are regularly built and operated by joint ventures with complex international ownership and operational structures, including diverse flag states.

Yamal’s specialised Arc-7 fleet effective but more costly to run

At the same time, Novatek’s specialised ice-class ‘Arc-7’ LNGCs are not optimised for conventional LNG trade. They were built to withstand pack ice dense and strong enough to severely damage ordinary hulls along the so-called Northern Sea Route, a summer shipping lane into North Asia traversing the Arctic Circle. The reinforced, icebreaker-like bows of Arc-7 LNGCs, however, require more energy to make speed, increasing costs on a per-unit basis. Transferring cargo onto more nimble vessels part way thus constitutes an economic imperative for Russian arctic LNG supply into Europe and the Atlantic Basin

Side-stepping sanctions

Recent US (now resolved) sanctions on COSCO Shipping Tanker (Dalian) Co. – originally one of the Arc-7 joint venture partners – could have exacerbated the situation by effectively preventing part of Yamal’s fleet from operating. Nevertheless, the affected vessels neatly sidestepped the issue whilst their ownership structures were speedily adjusted by either being on ballast voyages or making deliveries to China, our LNG Market Tracker shows. 

Final winter STS site yet to be confirmed

Although Yamal can thus look back on two eventful quarters, questions remain where future STS operations are going to take place. Whilst the waters around Kildin Island close to Murmansk have previously been touted as Honningsvåg’s successor due to relatively little pack ice in winter, it remains unclear whether Novatek has managed to conclude an agreement with Russian naval authorities operating a submarine base in the area. Regardless, the company’s vision to build a permanent STS base on the Kola Peninsula is unlikely to be completed before 2022.

As such, our LNG Market Tracker shows that the newbuild Georgiy Ushakov – the latest Arc-7 addition to the Yamal fleet – has anchored at Honningsvåg on 28 October. Although the vessel has not yet had its cooldown cargo, the anchoring at one of Honningsvåg’s previous STS zones is noteworthy. 

Original STS contract underperformed

The original contract between Novatek and Tschudi Group, the Norwegian STS specialist who handled the 123 LNG transfers at Honningsvåg until June this year, stipulated 158 such operations. There may thus still be headroom for at least 35 further transfers provided the original Norwegian STS license can be renewed.