LNG ship heads to Japan via the Arctic Ocean

November 27, 2012

A large tanker carrying liquified natural gas (LNG) is set to become the first ship of its type to sail across the Arctic. The ship left Hammerfest in the north of Norway on 7 November and will traverse the eastern arctic to Japan (via the northeast passage).

The specially equipped tanker named the Ob River has a strengthened hull.  Ob River can carry up to 150,000 cubic metres (about 63,668 mt or 3.1 Bcf) of LNG. The LNG-tanker will be escorted by Russian nuclear powered icebreakers for most of the route along the north coast of Siberia.

The ship is due to arrive in early December and will shave 20 days of the normal voyage. The trip will save 40% of the distance, and 40% less fuel. Nineteen thousand ships went through the Suez canal last year; around 46 went through the northern sea/Arctic ocean route.

Demand for liquefied natural gas is high in Europe and Asia, where the fuel costs $10 to $16 per million British thermal units—far more than the $3.70 it fetches in the U.S. The U.S. is awash in natural gas, so much so that prices have fallen to historic lows and inventories are well above their five-year average. In fact, the price is so low that many energy companies no longer consider it profitable to drill. Unfortunately the US has only one small 40 year old LNG export facility at Nikiski, Alaska.

The Statoil LNG Facility at Hammerfest produces 4.2 million tonnes per annum of LNG.

Commentary

There are several noteworthy points on this story:

• The 2012 season for sailing the route will be historical for two reasons; never before has the sailing season been so long – and never before has so much cargo been shipped along the route. Increased traffic and a longer season suggests the north-west passage may become interesting for shippers as well.
• Norway is a world leader in developing its far northern hydrocarbon resources. Hammerfest is at 70 degrees north latitude, just a little south of Barrow Alaska. Being so far north did not stop Statoil from building an LNG facility. The Norwegians are taking advantage of favorable world markets for LNG.
• The superb Russian ice breaker fleet, the most capable in the world, makes such a voyage possible so late in the year. I would imagine the Russians would need to be paid for their efforts.
• The Fukushima Daiichi nuclear disaster of March 2011 has changed the market for LNG. Japan has increased the demand for LNG as it moves away from nuclear power. The high prices for LNG in Asia coupled with the vast quantities of supply in North America have caused a worldwide effort to plan LNG exports into the Asian market.

Sources

• a) Matt McGrath, "Gas tanker Ob River attempts first winter Arctic crossing" http://www.bbc.co.uk/news/science-environment-20454757



• b)http://www.bloomberg.com/news/2012-11-25/natural-gas-exports-could-lift-u-s-trade-and-economy.html



• c)http://barentsobserver.com/en/arctic/hammerfest-lng-set-sails-japan-arctic-route-06-11