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Jan 20, 2021
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Sevmorput: LNG tanker made its way from Russia to Asia

Photo: Arctic LNG carrier Christophe de Margerie

Photo: Arctic LNG carrier Christophe de Margerie (Photo: Alexander Ryumin / TASS)

Russia has begun an unprecedentedly early pilotage of liquefied gas (LNG) tankers along the Northern Sea Route eastward. On January 16, the LNG carrier Christophe de Margerie reached the Dezhnev Cape and completed the passage along the NSR as part of a commercial voyage to deliver gas from the Yamal LNG project to the Asia-Pacific region. This was reported by Sovcomflot.

“The duration of the passage from the outlet from the Morskoy Canal of the Ob Bay to Cape Dezhnev was 10 days 21 hours. The vessel covered a distance of 2,474 nautical miles (4.5 thousand kilometers), ”the release says.

Sovcomflot notes that this flight “makes it possible to get one step closer to organizing year-round safe navigation along the entire NSR route.”

Let us explain that traditionally navigation in the eastern sector of the NSR ends in December and begins in the second half of May. But now NOVATEK is heroically torn into the Arctic ice, as it decided to take advantage of the unprecedented rise in spot prices for LNG in Asia. For deliveries in mid-February, they exceeded $ 1,100 per thousand cubic meters, which is four times more than in Europe.

NOVATEK has already dispatched two trial cargoes unaccompanied by the icebreaker (no free ones, flights are scheduled in advance). On January 5, the aforementioned Christophe de Margerie departed from Sabetta, followed by the Nikolay Evgenov gas carrier on January 6. The gas tanker “Nikolai Zubov” is coming towards them from Tianjin in China.

It must be said that NOVATEK has 15 Arc7 ice-class gas carriers, thanks to which it doubled the number of direct shipments to Asia in 2020 (36 tankers versus 17 a year earlier). But now gas prices in Asia are simply going off scale due to the lack of supply in the region amid cold weather, and it is a sin not to take advantage of the situation.

The problem is one: NOVATEK does not have much free, uncontracted LNG. In theory, experts say, the company can redirect part of the gas to Asia under long-term contracts from Europe with the permission of customers who can buy gas from Gazprom in exchange, dividing the profit from transactions in Asia with NOVATEK. But whether clients will agree to such an exchange is an open question.

What are the prospects for Russian LNG supplies to Asia when the year-round navigation along the NSR will finally begin?

– In 2020, gas prices fell to record low levels – such that it was not profitable for anyone in the world to carry out supplies, – reminds Director of the Institute of National Energy Sergey Pravosudov… – In such a situation, LNG producers began to shut down plants under the pretext of planned repairs – in fact, in order to reduce volumes and not work at a loss. I would like to note that Gazprom continued to supply blue fuel to Europe under these conditions, although the prices there were awful.

Gas prices collapsed in 2020, as a number of factors converged: a warm winter, a coronavirus crisis, a reduction in consumption, underground storage facilities in Europe filled to capacity, an excess of LNG on the market.

And then came a normal winter – after two warm winters in a row – in some places even with abnormal frosts. As a result, gas consumption began to rise sharply. And the exchange always reacts to any frost in the same way – gas prices go up.

What happens next is also well known. Consumers who have no money to buy gas at high prices are starting to switch to cheaper fuel: coal, fuel oil, sometimes even firewood. In a word, they begin to survive as best they can.

As a result, gas consumption inevitably begins to decline. And gradually, when the frost subsides, the prices for natural gas go down – and the situation on the market will return to normal.

Today, of course, we are at the beginning of this cycle.

“SP”: – Why are gas prices in Asia understood many times more than in Europe?

– Asian countries are not doing very well with underground gas storage facilities. Basically, these countries buy LNG – in Japan there is no pipeline gas at all, in South Korea too. Gas lines from Russia stretch to China, but the Celestial Empire also buys LNG in large quantities.

Asia is not investing in storage: it is a very expensive business. And why, if in most cases you can just buy LNG ?! In Europe, the situation is different: there are depleted deposits, which were converted into storage facilities without special investments. Plus, when the storage is next to the pipe, it is very convenient.

Nobody knows when and in what region the frost will hit along the pipe, and storage facilities allow to smooth out consumption peaks.

For example, now all along the pipe – from the Yamalo-Nenets District to Germany and France – the weather is cold, and consumption is growing everywhere. The capacity of the pipe is limited. Meanwhile, a lot of gas is taken from it back in Russia, and the pipeline is noticeably empty towards the border with Europe. But storage facilities solve the problem: Europeans always have a certain amount of gas stored up since the summer. And this circumstance always restrains the growth of gas prices in Europe.

But in Asia, where there are no storage facilities, during periods of peak consumption, suppliers are forced to run around like scalded ones, looking around the world for free gas tankers. There are not so many tankers, of course, and prices in Asia are skyrocketing.

This is what we are seeing now. But, I repeat, as soon as the frosts subside, the prices for LNG in Asia will also go down.

“SP”: – That is, NOVATEK is doing the right thing, trying to snatch a piece of the Asian pie?

“All LNG suppliers are doing this now. The prices are record high – they have exceeded $ 1000 per thousand cubic meters. NOVATEK is acting in the spirit of the situation – launching gas tankers along the Northern Sea Route in January, which has never happened. Moreover, without an icebreaker.

The company insists that tankers are not simple, but specially created for the Arctic. And so – one gas carrier passed the NSR, and with the second, “Nikolai Evgenov”, problems arose. Starting on January 16, the ship slowed down, sometimes dropping to three knots. This is allegedly due to the failure of one of the three propulsion systems.

But NOVATEK does not give up: since the prices are record high, the company intends to send gas carriers to Asia and further, but with icebreaker escort – even if this will increase the cost of delivery.

JV: – Can NOVATEK redirect part of gas to Asia under long-term contracts from Europe with the permission of clients who can buy gas from Gazprom in exchange?

– Now all traders are trying to agree on mutual exchanges, and they are buying up gas. Someone succeeds, someone does not. Here everyone is trying to make money for himself, and each player decides for himself what is more profitable for him at the moment.

SP: – How much does the situation on the gas market in Asia stimulate the year-round operation of the Northern Sea Route?

– Deliveries along the NSR are, of course, associated with gas and oil, and potentially also with coal. But the question is in the price of the goods – it should be high enough. If supplies to Asia are profitable, there will be icebreakers that will haul tanker caravans to the East. If the prices, on the contrary, are low, no one will bother with deliveries via the NSR.

I will add that in the development of the Northern Sea Route, the stake is placed on global warming. If there is little ice along the route, the NSR will be a very popular route. If not, talk about year-round navigation on it is premature.

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