By John Helmer, Moscow
What’s sauce for the goose is sauce for the gander — the English proverb is not about birds or cooking, but about equal treatment. When it comes to operating tanker fleets in and out of Russia’s ports, foreign-owned vessels have been enjoying equality of access for some time. That may be about to change, at least in Arctic waters.
Russia’s Sovcomflot, the state-owned oil and gas fleet operator, has proposed to form a consortium with gas producer Novatek to build and operate a fleet of new gas carriers for the Northern Sea Route. Details were disclosed last week by Dmitry Rusanov, an executive in Sovcomflot’s gas fleet division. In interviews with reporters in Moscow, Rusanov said that competing fleet operators would be ineffective and should not be selected by Novatek. “If everyone would keep their own technical management, the effectiveness of the project as a whole will decline. Shipowners will fight among themselves for trained crews, race each other for salaries. In the end it will not benefit anyone, especially Novatek. and therefore a single operator is needed.”
Rusanov also acknowledged that because of the high financing costs for newbuilds, and the low revenues from current tanker rates, Sovcomflot and Novatek should pool their resources in a consortium to keep shipping Novatek’s new liquefied natural gas (LNG) under Russian company control. The cost of the new LNG tanker fleet is estimated at almost $6 billion.
What Sovcomflot means by “consortium” is what market regulators are likely to call a cartel, if not a simple monopoly. That is against the law in Russia, as at other ports of call where Sovcomflot tankers load and discharge their cargoes. The Russian regulator, called the Federal Antimonopoly Service (FAS), has the authority to say no to Sovcomflot, even if Novatek says no more than maybe. And this is where the gander comes in. For this month FAS started an investigation of most of the container shipping fleets working in Russia for alleged cartel price and market rigging.
Can FAS find fault in the container shipping market, in which a score of major companies compete, none with a market share of more than 18%, and fail to investigate the Arctic LNG shipping market in which many are capable of competing, but Sovcomflot would shut them out?
According to the terms  of accession to the World Trade Organization (WTO) last year, Russia has made commitments in maritime goods and services. These include a reduction of import duties for foreign-made shipping equipment to 7.6%. But a monopoly shutout of all non-Russian LNG tanker fleets may violate the commitments on market access and national treatment, and trigger WTO reaction.
These hypotheticals are ahead; here’s the story so far. Moscow-based Novatek, an independent Russian gas producer, is developing the South-Tambeyskoye field on the Yamal peninsula; latest calculations released by the company indicate reserves of between 3.8 and 4.9 billion barrels of energy equivalent. Design of an LNG refinery and tanker loading terminal at Sabetta port, on the eastern shore of the peninsula, was completed in 2011; construction of the port begun last July. Novatek says it has also “validated the design concept for the construction of a new 170,000 cubic meter capacity Arc 7 LNG Carrier.” From Sabetta it is planned to ship at full refinery capacity an estimated 15 to 17 million tonnes per annum through the Kara, Barents and North Seas to Zeebrugge, Belgium.
In a presentation in Miami last month, Novatek’s chief financial officer, Mark Gyetvay, noted that political and security risks for LNG producers in West Africa, North Africa and the Middle East are significantly higher. Transportation costs, he also noted, absorb a significantly higher proportion of Novatek’s total production bill, compared to other global producers.
Novatek’s Yamal LNG company is jointly owned by Leonid Mikhelson and Gennady Timchenko, Novatek’s control shareholders; Total of France owns a 20% stake A joint venture agreement was signed last month with Gazprom to share in the development costs of the project. A decision by President Vladimir Putin is expected shortly to determine whether Novatek will export the Yamal LNG directly, or through Gazprom, which currently has a monopoly on gas exports from Russia, and operates Russia’s first LNG plant at Aniva Bay, Sakhalin.
Between September and November, according to Novatek releases, tenders were called for procurement of long-lead items for the LNG project. Based on output calculations, at full operational capacity of the gasfield and the LNG plant Sabetta will be loading 16 gas carriers. Sovcomflot currently lists a specialized fleet of 10 gas carriers, with four in construction until 2014. The fleet’s maximum vessel capacity at the moment is 146,000 cubic metres of gas. The four new carriers being built by STX (South Korea) will have capacity of 170,200 cubic metres.
Industry reports indicate that Novatek’s tender for the Yamal LNG tankers has drawn, in addition to Sovcomflot, proposals from Dynagas (Greece), Stena (Sweden), NYK (Japan), Teekay (Canada), Prisco (Russia), and a half-dozen more. Sovcomflot’s proposal to supplant them all and monopolize the Yamal LNG shipping operation, according to Rusanov, “would streamline ownership and management of gas carriers”.
Novatek was asked to clarify the Sovcomflot and rival fleet proposals, and indicate whether the Russian government is supporting a single, Russian-flagged plan. Spokesman Mikhail Logovoi told Fairplay the company won’t respond except to say that Sovcomflot has not yet submitted the consortium plan. Novatek is also not saying when it will decide on the other tender offers. According to Logovoi, Novatek is willing to “help” Sovcomflot if asked.
Without Novatek behind it, Sovcomflot would struggle to raise new financing for additional fleet. It has been downgraded  by international ratings agencies Fitch and Moody already as it faces more than $1.1 billion in new bills for vessels on order and still under construction. Sovcomflot says these include two multifunctional ice-breakers, two Very Large Crude Carriers, and the four STX gas carriers. The contract price for these newbuilds is $1.58 billion. Just $441.5 million has been paid so far.
Alexei Bezborodov, publisher of Moscow maritime analysis agency Infranews.ru, said that Sovcomflot will be reluctant publicly to propose restricting the Yamal LNG tanker operations to itself. “This is called a cartel, and punishable by law.”
Nadezhda Malysheva from the leading Russian maritime analytical agency PortNews, told Fairplay that Novatek has underestimated its capabilities to build Sabetta port, and will need a consortium to operate LNG shipping on the Northern Sea Route. “The consortium is created to provide the right conditions for members of the consortium for this work.Iin my opinion, the consortium will include only those companies which are in principle eligible for the job…the number of those who can qualify for this [type of] transportation is not very big.”
Dynagas told Fairplay in December that it has two LNG tankers certified for North Sea route operations. One, the Ob River, has been testing westward and eastward movements through the Northern Sea route. Built in 2007 with 1A ice-classification, the Ob River has been on time charter with Gazprom since 2009 for winter operations to load LNG at Gazprom’s Sakhalin-2 terminal at Aniva Bay.
Since 2005  Sovcomflot has made a record of buying over-priced vessels and suffering the consequences. In the last quarter of 2012, Sovcomflot was loss-making, and it cannot afford to build new LNG tankers. Novatek, whose bottom-line profit has been growing at 24% per annum, is the much stronger company; it wants to keep tanker rates as competitive and as low as possible. There’s the rub. At the same time, the Kremlin has been jawboning domestic oil and gas exporters to put more Russian energy exports on board vessels flying the Russian flag. The response has been lukewarm. In this case, Sergei Frank, Sovcomflot’s chief executive, is trying to persuade Gennady Timchenko, Novatek shareholder, to keep the profit from LNG transportation inside Russia; also in the family, as Frank and Timchenko are related by their children’s marriage.
For the time being, Novatek’s lukewarm response suggests reluctance on Timchenko’s part to add tanker construction costs to the Novatek balance-sheet, reducing his dividends and potentially hurting Novatek’s share price. If they can’t reach a compromise, the Kremlin will have to decide.