Sovcomflot eyes expansion as Yamal LNG nears start

Russian giant needs to raise fresh equity if it is to expand in LNG shipping, says financial chief Kolesnikov

SOVCOMFLOT, Russia's energy shipping giant, is eyeing an expansion in liquefied natural gas transport as the Yamal LNG project in the Arctic nears completion.

While the company currently has just one icebreaking LNG carrier on charter to the project, owned by Novatek, Total, China National Petroleum Corp and Silk Road Fund, chief financial officer Nikolay Kolesnikov told Lloyd’s List there could be more involvement in the future.

“Our exposure to the project is just this one unit,” Mr Kolesnikov said.

“We will most likely increase our involvement as the project evolves,” he said.

A total of 15 icebreaking LNG carriers, each with a carrying capacity of nearly 174,000 cu m, have been ordered at Daewoo Shipbuilding & Marine Engineering for shipping LNG from the Russian Arctic project on long-term charters.

Other than Sovcomflot’s vessel Christophe de Margerie, the rest were ordered by Mitsui OSK Lines, Teekay and Dynagas LNG Partners, together with their Chinese state-owned shipping partners.

Mr Kolesnikov did not elaborate on how Sovcomflot can become involved with Yamal’s shipping side.

However, his company has recently been boasting its operational capability, saying Christophe de Margerie set a new time record for transiting Russia's northern sea route when carrying a cargo from Norway to South Korea in August.

The vessel, named after a former chief executive of Total who died in a plane crash in 2014, has yet to start carrying cargoes from Yamal.

“Yamal faced hurdles but will start producing this year, with the first loading before the end of the year,” Mr Kolesnikov said.

Once fully operational, the Yamal project will have a capacity of 16.5m tonnes of LNG per year from the South Tambey field in the Arctic.

Relying on more long-term business such as Yamal is in line with Sovcomflot’s corporate strategy.

“We are a conservative business, and would rather prepare for the worst through a diversified portfolio,” Mr Kolesnikov said.

Moreover, LNG shipping markets are recovering.

Sovcomflot saw revenues from its gas transport unit, which also includes liquefied petroleum gas, rise to $76.4m in the first half from $72.6m a year earlier. In contrast, its oil tankers business, which comprises 124 crude and product carriers, saw revenues drop to $267.5m versus $371.9m due to what was described as seasonal sluggish demand.

Its net profits plunged to $15.2m from $166m a year earlier.

Adding a new twist to Sovcomflot’s initial public offering story, which has been brewing for years, Mr Kolesnikov said that in order to expand in LNG shipping the company would need to raise new equity. Perhaps that would be in the form of a listing on the Moscow stock exchange, with a secondary listing elsewhere, he added. The company is currently 100% state-owned.

But that move depended on market conditions and investor appetite, Mr Kolesnikov said, adding that neither of those elements were conducive at the moment.