RUSSIAN ARCTIC LNG
FT - A ship capable of breaking through thick Arctic ice to deliver Russian liquefied natural gas to Asia is due to begin trials, marking an important step towards completion of a $27bn LNG project championed by president Vladimir Putin.
The tanker is the first of a new class of icebreaking LNG carriers that will open an export route from Siberia to the Pacific — reducing Russia's dependence on selling gas through pipelines to Europe.
The ship — named Christophe de Margerie after the former chief executive of Total killed in a 2014 Moscow plane crash — docked in Zeebrugge on Friday after its maiden voyage from South Korea, where it was built by Daewoo Shipbuilding and Marine Engineering.
It will then sail north for its first encounter with sea ice around the Yamal Peninsula where Novatek, the Russian gas producer, is building the biggest Arctic LNG project so far in partnership with Total of France and CNPC of China.
The $300m LNG ship, owned and operated by Sovcomflot, a leading Russian shipping company, is engineered to withstand temperatures as low as minus 50 degrees Celsius with a flat, rather than bulbous, prow designed to rupture ice up to 1.5 metres in depth.
"Without this icebreaking capability the Yamal project would not work," said Mike Borrell, Total's head of exploration and production in Europe and central Asia. "It will allow us to ship LNG 365 days a year."
The project highlights the commercial opportunities being opened in the Arctic as climate change thins the polar ice cap.
LNG will take 14 to 16 days to ship from Yamal to China or Japan during summer months via the northern sea route along the Arctic coast of Russia.
During winter, when ice is thicker, the tankers will make the shorter journey to Zeebrugge, Belgium, where LNG will be transferred to a conventional carrier for the 25-day journey via the Suez Canal to east Asia.
Yamal is projected to double Russia's share of the growing global LNG market by the time it reaches full capacity of 16.5m tonnes a year — equivalent to more than 80 per cent of China's annual demand — by 2021. Construction is three-quarters complete and production from the first phase of the project is due to commence by the end of this year.
More than 95 per cent of Yamal's expected output has already been sold through 15 to 20 year contracts, with customers mostly in Asia and Europe.
The project was thrown into doubt in 2014 when Novatek, co-owned by Gennady Timchenko, an ally of Mr Putin, was targeted by US sanctions in the wake of Russia's annexation of Crimea. This made it impossible to finance construction in US dollars but Chinese banks stepped in last April with loans equivalent to $12bn.
China was already heavily committed to the project through stakes held by CNPC and president Xi Jinping's Silk Road Fund, which aims to spur economic development along the corridor between China and Europe.
Daewoo is building 15 Arc 7 ice-class tankers, each the length of three football pitches, for use at Yamal. The carriers will be owned and operated by various shipping companies.
The prospect of the northern sea route becoming a path to market for Arctic fossil fuels risks the ire of environmentalists who worry about the impact of oil and gas exploration and shipping on the region's fragile habitats.
Rod Downie, head of polar policy at WWF, the conservation group, said it was ironic that fossil fuel producers stand to benefit from the retreating ice that their products are blamed for melting.
He added the introduction this month of a "polar code" establishing international regulations for Arctic shipping was a positive step but contained "gaping holes" in areas such as air pollution and waste discharge.
Total said all partners in the project were committed to protecting the Arctic and that Yamal gas could help tackle climate change by replacing coal — which produces much higher carbon emissions when burnt — in power generation.
The Yamal project is at the heart of wider efforts by Mr Putin's government to revive the struggling economies of Russia's far north and deepen trade ties with Asia by increasing Arctic shipping and resource development.
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