Sanctions hit NOVATEK from the back

By threat - most of the fleet ordered by the company under Yamal LNG.
01.10.2019
Vedomosti
Origin source
On Monday, September 30, Canadian Teekay announced that new US sanctions could indirectly apply to six Arc7 tankers ordered for the Yamal LNG plant.

They have no direct relation to either Yamal LNG, Novatek, or the Canadians themselves - on September 25, the US Treasury expanded the list of individuals and companies on the SDN list (specially designated nationals, black list). These individuals and companies are suspected of trading in Iranian oil, and the Chinese COSCO Shipping Tanker (Dalian) Co, which owns 50% of China LNG Shipping (Holdings) Limited (CLNG), is on the list. CLNG, on the other hand, is Teekay’s partner in a joint venture (in equal shares), which in 2014 ordered six Arc7 ice-class tankers to work with Yamal LNG.

“In accordance with the OFAC rules (a division of the US Treasury that is responsible, in particular, for sanctions), the joint venture is also considered to be a“ blocked person, ”Teekay said in a statement. The company is actively working with CLNG to quickly solve this problem, she said in a statement.

Novatek assured gas buyers that Yamal LNG has the necessary capabilities to secure contract deliveries on time. Four out of six Arc7 tankers of the Chinese-Canadian joint venture are already working with Yamal LNG; these shipments are not related to the sanctions imposed on CLNG shareholders, the Russian company emphasizes.

Yamal LNG is the first large-capacity liquefied natural gas plant in the Arctic, Novatek has launched production on the basis of the peninsula’s fields. The partners of the Russian company are French Total (20%), Chinese CNPC (20%) and Silk Road Fund (9.9%). The plant is estimated at $ 27 billion, the productivity of the three workers is about 18 million tons of LNG per year. In 2014, the South Korean DSME shipyard ordered 15 high-ice tankers for the plant for more than $ 5 billion.

In addition to six Teekay tankers, theoretically, partnerships with the Chinese company may also include Yamal LNG carriers owned by the Greek Dynagas. The Greeks ordered five tankers from DSME for the Russian plant and involved CLNG and Sinotrans Shipping Ltd. (25.5% each). CLNG has no control over the joint venture, but this does not guarantee the joint venture against sanctions. “It should be borne in mind that sanctions are primarily a sphere of political interests. Accordingly, it will not have legal significance what kind of participation is controlling or not, ”Denis Frolov, partner of BMS Law Firm, warns.

There is no explanation from OFAC yet, and it is difficult to say whether third countries will be afraid of US secondary sanctions and which countries are subject to American jurisdiction, says Alexander Losev, General Director of Sputnik Management Company, but it’s obvious that blocked persons may have problems with settlements in dollars for freight, insurance and port services.

The case of the Canadian-Chinese joint venture shows that sanctions wars can have the most unexpected consequences - they can be felt by companies that have nothing to do with the subject of sanctions, argues Dmitry Marinchenko, senior director of the Fitch corporations department. “It is unclear whether Novatek will be able to continue to use tankers while the parties try to resolve the situation, or some hitch is possible, but Novatek will in any case try to do everything possible to prevent supply disruptions,” Marinchenko said.

Sanctions take effect when operations take place in dollars, says Alexei Panin, partner at Urus Advisory, a consulting company: here we are talking about Russian and Chinese projects, and most likely, wherever possible, the parties took care of dedollarization to eliminate this risk. Of course, sanctions will cause trouble and will add work to lawyers, but they will not affect the activity of digging, the expert is sure. “In the long run, it is important that US sanctions are sensitive to China, despite all its economic power. And if it comes to real negotiations with the American side, in the absence of other alternatives, the Chinese will easily “discard” the Novatek project, Panin warns.
The US is actively applying sanctions not only to shipowners and charterers, but also to the sea vessels themselves, says Alexander Pakhomov, director of the Fuel and Energy Development and Mediation Development Fund. “Now there are dozens of such ships, mainly tankers, under the Russian, North Korean, Cuban and Iranian flags. A vessel against which sanctions have been imposed is deprived of the opportunity to call at international ports, they are simply not accepted, and it is extremely difficult, if not impossible, to remove such sanctions from the vessel, which depreciates an extremely expensive asset, ”Pakhomov explains. Perhaps the only way out for companies is to seek the lifting of sanctions, to prove non-involvement in the transportation of Iranian oil, the expert says. “Until the restrictions are lifted, the sub-sanction fleet can be used to transfer cargo side to side or for transportation between ports of countries that are not recognized by US sanctions. Although this does not guarantee that they will be serviced, ”complains Pakhomov.

Yamal LNG was launched ahead of schedule by a year, and Arc7 tankers were built according to the original schedule, so Novatek already has experience in a limited number of gas carriers of an increased ice class. To transport LNG from the port of Sabetta (gateway to the Yamal LNG) in the direction of Murmansk and further to Western Europe, Arc4 class vessels are regularly and quite successfully used. “But the current rules of navigation along the Northern Sea Route impose serious restrictions on the passage of such vessels in the eastern direction. In conditions of moderate or severe ice conditions - about five months a year - Arc4 cannot be sent directly to China even with icebreaking support, ”explains an expert familiar with the peculiarities of shipping in the northern latitudes. But it cannot be ruled out that these standards can be revised or adjusted if necessary, he thinks.

In addition to increasing the costs of icebreaking escort for Arc4 tankers (Arc7 tankers do not need it in light ice conditions. - Vedomosti), restrictions on access to the Arc7 fleet pose a threat to Novatek’s plans to load an LNG transshipment terminal, which will be built on Kamchatka for more than 100 billion rubles: its throughput will be more than 21 million tons of LNG per year.

In addition, eastward navigation growth is one of the components of the Northern Sea Route development program, the cargo base of which, by decree of Russian President Vladimir Putin, should reach 80 million tons by 2024. The bulk of these cargoes should be Novateka LNG plants. ".

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