The liquefied natural gas (LNG) sector is facing the potential emergence of its own shadow or dark fleet of ships, which could facilitate Russia’s growing exports of the super-chilled fuel.
Russia has established a so-called “dark fleet” of tankers with obscure ownership and jurisdiction to circumvent sanctions on its crude and petroleum products, and a similar scenario may possibly play out on the LNG side, according to Oystein Kalleklev, chief executive of Norwegian shipping company Flex LNG.
“We do think the Russians are planning to do something similar to what we’ve seen on the oil and petroleum side,” Kalleklev said during the company’s earnings call this week.
While the EU nearly stopped purchasing piped gas from Gazprom following the full-scale invasion of Ukraine in February 2022, Russia’s LNG exports to Europe in 2023 surged by about 38% as compared to the pre-war year of 2021, making the country Europe’s second-largest supplier of LNG.
“Such massive LNG exports to Europe are a major source of revenue for Russia, totaling up to €10bn per year, and can be used by Putin to finance the war against Ukraine,” noted the American think tank Atlantic Council.
Russia ranked as the world’s fourth-largest LNG exporter in 2023, sending out cargoes of 30m tonne and this capacity is estimated to more than double by 2030.
The key Russian LNG exporter is Novatek, the country’s second-largest natural gas producer. In 2022, Novatek exported more than 76% of the LNG produced by its Yamal LNG project to Europe and it plans to continue with its massive Arctic LNG-2 project, despite some initial difficulties accessing critical Western technology, sanctions and a lack of ships.
“The project has suspended production primarily due to shortage of ice-classed LNG carriers, of which the original plan was to build 21 vessels,” Flex LNG noted.
A set of sanctions have recently been proposed by the EU, including a ban on re-loading of Russian LNG in the EU and a ban on new investments and provisions of technology and services for new Russian LNG projects. The ban on Russian LNG imports, however, remains for the member states to decide for themselves.
“If Europe is not taking the Russian cargoes, the other countries in the BRICS, being Brazil, India, China, and South Africa, are willing buyers of the Russian LNG, which will result in longer sailing distances,” Kalleklev said, adding that the company does not expect any shut-in of Russian LNG but that the country’s inability to build or charter in the necessary tonnage for its projects could lead to increased demand for existing vessels on the water, potentially resulting in the arrival of an “LNG dark fleet”.
“These cargoes will flow, and they will maybe soak up some of the steam tonnage that would otherwise be scrapped,” he argued.
In their latest coverage of the LNG sector, MB Shipbrokers noted that advanced discussions are already taking place around a number of steam turbine vessels redelivering off their charters later this year and early next year.
