Novatek set to build its own Arctic LNG fleet

The move comes as Russia works to nationalize shipping on the Northern Sea Route.

The Christophe de Margerie, an ice-class tanker fitted out to transport liquefied natural gas, is docked in Arctic port of Sabetta, Yamalo-Nenets district, Russia March 30, 2017. (Olesya Astakhova / Reuters File Photo)

Russian natural gas company Novatek has decided to establish the Sea Arctic Transport, a subsidiary managing shipping operations in Arctic waters.

According to CEO Leonid Mikhelson, in a company press release, the new unit will help enhance efficiency related to costs and fleet management.

“The long-term strategy of Novatek includes the growth in LNG production in the Arctic region to at least 55 million tons per year [and] therefore the organization of efficient models for shipping on the Northern Sea Route is one of our priorities.”

It will help boost competitiveness, Mikhelson argues.

“The establishment of our own transport company fully corresponds with our goals and allows us to […] enhance competitiveness of Novatek’s Arctic projects.”

The decision to create a new company comes as Russian authorities are taking measures to nationalize shipping along the Northern Sea Route.

In mid-November 2017, President Putin announced that all shipments of oil and natural gas along the Northern Sea Route would be nationalized, and a bill from the State Duma followed few weeks later.

Then, in March 2018, the Ministry of Industry and Trade elaborated a bill, which says that only Russian-built vessels will be allowed to ship to and from ports on the Northern Sea Route.

Ultimately, the new legislation will allow only Russian-built vessels shipping under Russian flag to carry oil, natural gas and coal on the Northern Sea Route.

At the same time, Russian Arctic shipping is experiencing a boom with more than ten million tons of goods sent on the Northern Sea Route in 2017. And more is to come. Among the priorities laid down in Vladimir Putin’s strategy for the next six years is an increase in Northern Sea Route shipping to 80 million tons.

The new regime is a potential headache for the foreign shipping companies which already are engaged in the region.

Foreign companies such as Teekay, Dynagas and Mitsui are all instrumental in building LNG carriers for Novatek’s Yamal LNG project. The powerful new ships are all built in Korea and carry foreign flags. Only one of the 15 Yamal LNG tankers, the Christophe de Margerie, is owned and operated by a Russian company. However, this ship which is operated by Sovcomflot, doesn’t sail under a Russian flag.

Novatek’s new shipping company is likely to be established in connection with the development of the Arctic LNG-2, the projected new natural gas project in the region. The Arctic LNG-2 is planned to produce up to 20 million tons of LNG per year and will require an additional big number of tankers.

By developing its own fleet, Novatek is moving in the same direction as mining and metallurgy company Norilsk Nickel. In the 2000s, Norilsk Nickel built up its own fleet of ships, thus allowing for independence from other shipping providers. Norilsk Nickel today has a fleet of five ice-class Arc7 container vessels which shuttle between Dudinka and Murmansk.