South Korean shipyard cancels contract for LNG freighter | Polarjournal
Aker Arctic, Daewoo Shipbuilding & Marine Engineering (DSME) and Novatek have developed the “Fedor Litka”, a state-of-the-art icebreaking LNG carrier, to transport liquefied natural gas (LNG) along the Northern Sea Route throughout the year. (Photo: Novatek, Dmitry Lobusov)

South Korea’s DMSE shipyard canceled orders for the first of three LNG carriers after Novatek’s shipping partner Sovcomflot was unable to pay due to EU sanctions. If the Russian customer does not meet its payment demands, Daewoo Shipbuilding would eventually have to cancel the second and third ships as well. The shipbuilding contract was originally awarded in October 2020 for three Arc 7 ice-class LNG carriers, each with a capacity of 172,410 cbm.

Russia’s largest liquefied natural gas producer Novatek is facing another setback as a result. Just weeks after Total Energie pulled out of the Arctic LNG 2 project, South Korean shipyard Daewoo Shipbuilding and Marine Engineering (DMSE) announced it was canceling the contract due to missing payments. According to Korean media, the Russians are said to have failed to pay the second installment of the contract.

Despite the cancellation of the LNG carriers to Sovcomflot, DSME’s order books are full. (Photo: DSME)

The cancellation of the Arc7 LNG carrier is no surprise after the outstanding payment. The total cost for three ships was $872 million. The LNG carriers are to be built for the large Arctic LNG 2 liquefied natural gas project on the Gydan Peninsula.

Novatek will most likely have little use for a full fleet of 21 additional vessels, as Arctic LNG 2’s first production line will not go into production as planned.

The second and third production lines will not be built for the foreseeable future, as Novatek will probably no longer have a need for one or both of the transshipment hubs.

Rumor has it that the missed payment will facilitate an exit from existing supply contracts.

For the first time, Zvezda Shipyard, located not far from Vladivostok, is building fifteen LNG carriers for the Arctic LNG 2 liquefied natural gas project. (Image: Zvezda Shipbuilding Complex)

Novatek had big plans

To export liquefied natural gas, NOVATEK planned to create a fleet of 21 Arc-7 ice-class LNG carriers, 15 of which would be built at Russia’s Zvezda shipyard, a consortium of Rosneft, Rosneftegaz and Gazprombank. Six other ships went to DSME.

DSME has also been contracted by the Japanese shipping company MOL to build three LNG carriers of the same type, which will also be used for the Arctic LNG 2 project. These orders remain valid according to DSME.

According to well-informed sources, the tankers ordered in South Korea will become an insurance for NOVATEK in case the Zvezda shipyard cannot deliver the vessels on time, as LNG tankers have never been built in Russia.

Heiner Kubny, PolarJournal

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