Tracking LNG shipments to Asia through the Arctic North Sea Route

Shipments from Novatek Yamal LNG project are using the Arctic Northern Sea Route (NSR) to transport cargoes into Asia, taking advantage of higher landed prices in the region and reduced ice cover during summer to lower voyage time and costs.

The LNG carrier “Vladimir Rusanov” left Sabetta port, home to the Yamal LNG plant in northern Russia on June 25th destined for Jiangsu, China on July 17th, according to Reuters shipping data.

The route lowers voyage time nearly by half based on the vessel’s estimated time of arrival, compared to the traditional Indian Ocean and Suez canal route, while cutting fuel costs and avoiding canal transit charges. Voyage time through NSR may fall even further as the ice sheet melts during summer resulting in additional savings. 

Another LNG carrier "Eduard Toll", following the same route and will reach Jiangsu on July 19th. These are among the first cargoes from the project shipped on ARC-7 LNG tankers; built to navigate NSR during summer without assistance from icebreakers.

The tanker uses its bow for navigation in open water and thin ice, while its stern is optimised to navigate in severe ice conditions. The Arc-7 tankers are designed to traverse 1.5 meters thick ice conditions around 6 knots and speed to 20 knots in open waters. Ice conditions along the route appear to be mild based on Eduard Toll’s vessel speeds. The vessel averaged 12.8 knots through the Kara Sea and Bearing straits, which includes the Arctic Ocean – normally a complex area to navigate due to heavy ice build-up.

Since the start of the year, most of the cargoes from Yamal LNG have moved to Europe. Eikon LNG flow monitor shows that out of 36 cargoes, representing 2.5 million metric tons tracked by Reuters LNG trade flows, only six cargoes moved to Asia.

It is easier for cargoes from Yamal LNG to move to Western Europe due to its location especially outside the summer months when the NSR is frozen, though the premium in Asian markets may result in more Yamal’s LNG cargoes moving into the region through re-shipments from liquefaction projects in Western Europe and by ship-to-ship transfers.

TR Eikon's Shipping distance calculator shows an eight-day voyage from Sabetta port to Zeebrugge the transshipment hub in Belgium based on vessel speed of 13.5 knots where cargoes from ice-class tanker may be transferred to a conventional LNG tanker for the onward trip to Asia. The voyage from Zeebrugge to Jiangsu via the Suez Canal takes another 30 days assuming vessel speed of 15 knots. The NSR reduces the shipping time by nearly half compared to the 42 days transshipping cargoes through Europe

The Yamal LNG project involves the construction of three liquefaction trains, each with the capacity to produce 5.5 million tons of LNG a year, supplied with gas from the Yuzhno-Tambeyskoye field. The first train entered production in December 2017.

Shipments from the project are expected to pick up as the second liquefaction train starts production by October and the third train commences output towards the end of 2018 or early 2019. The ramp-up in production would mean more spot cargoes after Novatek meets its long-term supply contract commitments. The increased availability of spot cargoes on the back of additional capacity is likely to find a home in North Asia on account of higher netbacks.

Calculations based on data from Eikon show landed prices from Russia to the region after accounting for shipping costs, liquefaction and regasification charges, are 44% higher in 1H18 while those for Western Europe rose only 23% against the same time last year. Shipping cargoes through the NSR could boost netbacks on account of lower transit costs.

Cargo shipments through NSR come at a time when spot LNG prices in China are buoyed by demand from coal-to-gas conversion projects as a result of drive-by central government to limit air pollution. Eikon data shows prices in China, adjusted seasonally, are at an all-time high compared to previous years.