Russia’s Arctic LNG 2 files arbitration claim against Hanwha Ocean

Novatek-owned (MOEX: NVTK) Arctic LNG 2 has filed an arbitration claim seeking $1bn in compensation from South Korea’s Hanwha Ocean (KRX: 042660) for voided contracts for the construction of LNG vessels, Reuters reported on September 8 citing a disclosure by Hanwha.

In October 2020, Hanwha Ocean, which at that time was known as Daewoo Shipbuilding & Marine Engineering (DSME), secured the order of six Arc7 ice-class LNG carriers for a cost of $1.7bn.

The orders were made by Russian shipowner Sovcomflot (MOEX: FLOT) and Japan’s Mitsui O.S.K. Lines (TYO: 9104), which agreed to charter the vessels out to Arctic LNG 2. The tankers were scheduled to be delivered between July and December 2023.

However, after Western sanctions were applied Hanwha was prohibited from delivering the ice-class LNG carriers to the LNG terminal located in Sabetta, northwestern Siberia. French firm GTT (EPA: GTT), which builds tankers’ gas membranes also pulled out of Russia in 2023.

According to Reuters, a disclosure on September 3 from Hanwha stated that Arctic LNG 2 filed a claim for $1.02bn with the Singapore International Arbitration Centre for an annulled shipbuilding contract.

The huge Arctic LNG 2 terminal was planned to have a production capacity of 19.8mn tonnes per year (tpy). However, with only two trains operating and the third train not expected to be operating until 2028, Novatek’s facility currently only has a production capacity of 13.2mn tpy.

Arctic LNG 2 depends heavily on ice-class LNG carriers in order to transport cargoes of the super-chilled fuel outside of the summer season. The Northern Sea Route is closed due to frozen, thick ice from November to June.

Facing the obstacles posed by Western sanctions, Arctic LNG 2 has been forced to procure ice-class vessels from Russia’s Zvezda shipyard in the Far East. Currently, two Arc7 ice-class vessels have been built at the shipyard.