Novatek eyes LNG cargo transfers should tanker sanctions last

By Naureen S. Malik and Anna Shiryaevskaya on 10/8/2019

NEW YORK and LONDON (Bloomberg) -- Russia’s biggest liquefied natural gas producer expects to be able to mitigate any impact should U.S. sanctions on China prevent it from using a third of its fleet.

Novatek PJSC will still be able to make full use of its Yamal LNG plant in Siberia even if five of its ice-breaking tankers are hit by U.S. sanctions on a unit of China’s Cosco, according to the Russian company’s chief financial officer. It will do so by transferring fuel onto conventional vessels in less icy locations so that the purpose-built fleet can quickly return to load.

The facility, which started production less than two years ago, is currently shipping some fuel directly to Asia using the Northern Sea route. As the ice there becomes too thick even for the specialized tankers, Yamal LNG may resume ship-to-ship transfers in Norway, as it did last year, and maybe also near Murmansk, in Russia’s northwest.

“We will look at both options,” Mark Gyetvay, Novatek’s CFO, said in an interview in New York, referring to Norway and Murmansk. “We were able to fulfill all of our obligations and deliver all those volumes that we had with the plant producing at over 100% even without the full complement of vessels.”

The fifth tanker under charter from a venture between a subsidiary of Cosco and New York-listed Teekay Corp. is on its way to Yamal LNG from a shipyard in South Korea. In late September, the U.S. imposed sanctions on the same Cosco unit, saying it traded oil with Iran with its own vessels.

Novatek expects to have all 15 of the project’s ice-class vessels in operation by year-end. The ARC7 ice-class vessels were specifically built for the project and they have nothing to do with Iranian oil shipments, Gyetvay said.

“These ARC7 class tankers are uniquely built for this particular project,” he said “They have nothing to do with Iranian crude oil shipment and they never will. We just hope that the partners dealing with this issue between the U.S. and China get this resolved in an amicable manner and get it resolved as quickly as possible.”

Yamal LNG is still delivering cargoes to Asia using the Northern Sea Route, with record shipments seen this year via the passage that’s open about half the year. Last year, the project switched over to ship-to-ship transfers in Norway in November. A total of 123 such transfers off Norway were completed by late June before the Northern Sea route reopened and more tankers were added to service the project.

Novatek will in the near term make the decision on this winter’s transfers, Gyetvay said. To arrange cargo transfers in Murmansk, which is even closer to the Yamal plant than Norway’s Honningsvag, some issues still need to be sorted out such as agreement with the government, as it is a busy zone and a military area.

“We have a facility location picked out where we can do this,” Gyetvay said. “The importance of Murmansk may rise in the government’s decision-making process, particularly now with the sanctions on Cosco.”

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