Novatek could discontinue production at Arctic LNG-2 | Polarjournal
The future of Arctic LNG-2 is uncertain and production is likely to start with a long delay. (Photo: Novatek)

The Russian company Novatek has significantly reduced the production of liquefied natural gas at its Arctic LNG 2 project. The reasons for this decision are sanctions and a lack of storage and transportation options. This was reported by Reuters, citing two industry sources. Russia currently accounts for 8% of global liquefied natural gas (LNG) exports. The Kremlin planned to increase this share to 30% by 2030.

Novatek will most likely not receive six of the LNG tankers ordered from the South Korean shipyard Hanwha Ocean. Three LNG tankers each were ordered for the leading Russian tanker group Sovcoflot and three for the Japanese Mitsui AOK Lines (MOL).

But now some of these ships cannot be delivered due to the US sanctions against Sovcomflot and some companies involved in the Arctic-2 project. The Japanese company MOL, which owns three LNG tankers, is therefore unable to carry out its handover for the project. Shipbuilders are now trying to avoid sanctions and hand over tankers to Novatek.

Keel laying of the third icebreaking Arc7 LNG tanker at the Zvezda shipyard. The design of the Arc7 tanker enables the vessel to break through ice up to 2 meters thick. The tanker will be 300 m long and 48.8 m wide and will have cargo tanks with a capacity of 172,600 m³ of LNG. (Photo: Zvezda shipyard)

Novatek ordered another 15 tankers from the Russian shipyard Zvezda, but also worked closely with South Korea and is now apparently trying to negotiate a cooperation with China.

Deliveries of the first line of Arctic LNG 2 were scheduled to begin in December 2023 or early this year. According to an informed source, Novatek increased gas production almost twentyfold in the run-up to the launch, but had to reduce it again due to a shortage of LNG tankers. In February 2023, production amounted to 83 million cubic meters. This is three times less than in January and five times less than in December. In addition to the lack of ships, the lack of storage facilities on site was also a contributing factor.

The Russian shipyard Zvezda Shipbuilding Complex held a steel cutting ceremony for the third icebreaking LNG carrier ARC 7 for the Arctic LNG 2 project in December 2021. (Photo: Zvezda shipyard)

According to analysts, three or four tankers would be enough for Novatek to start the first stage. The company may hire them through intermediaries. Several cargoes of LNG could be delivered to Asia to demonstrate the feasibility of the project.

Novatek had previously planned to commission the second stage in 2024 and the third in 2026. No changes to these plans have yet been announced. However, after sanctions were imposed on Arctic LNG 2 in November 2023, Novatek warned its customers of “force majeure” on deliveries. The market was not surprised by the project’s difficulties.

Heiner Kubny, PolarJournal

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