The opening of Arctic LNG route and the introduction of ice-breaker LNG carriers is set to affect shipments on conventional routes and reduce demand for conventional LNG carriers.
The Yamal project (located remote northern Russia, above the Arctic-circle) is expected to add about 16.5 million tonnes of LNG to global supply once it starts operating at full capacity in 2020. We expect that rising LNG exports from Russia will indirectly reduce demand for conventional LNG vessels, as the transportation from Yamal to Asian and European countries will employ special category of ice-breaker LNG carriers and taking a shorter Arctic route. In addition, the price competitiveness of Russian LNG compared with US is likely to provide a further boost to Russian exports. Consequently, we expect there to be a fall in cargo movement between US and Europe and therefore a reduced requirement for conventional LNG carriers.
Indeed, the low feedstock cost of world’s most complex LNG project as well as the introduction of a shorter shipping route will help Russia to deliver LNG at a lower price than most of its competitors. Additionally, the project is also benefitting from Russian government support, including a 12-year exemption from mineral extraction tax, no export taxes on LNG, and government-subsidised construction of the port of Sabetta.
Special ice-class LNG vessels will be required to take advantage of the Northern Sea Route via Bering Strait and this will enable vessels to reach Asia in 15 days, while the conventional route via the Suez Canal takes 30 days. This, in turn, will benefit importers by reducing the voyage time and transportation expenses.
In short, in our view, Yamal has the potential to adversely affect demand for conventional LNG vessels.
Source: U.S. Energy Information Administration