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Mystery buyers linked to Russia amass ‘murky fleet’ of LNG
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Mysterious buyers with suspected links to Russia have begun amassing dozens of vessels capable of carrying liquefied natural gas, in moves that suggest Moscow is expanding its “shadow fleet” of energy tankers.
Shipping industry sources say a group of previously unknown companies, largely registered in the UAE, have been rapidly acquiring LNG vessels over the past year, driving up market prices, especially for the oldest ships.
The buying spree has echoes of how Moscow has created a shadowy fleet of tankers to transport oil around the world in the face of Western sanctions, often using the United Arab Emirates as a center for energy businesses. Although Russian LNG sales are less affected by Western sanctions than oil, Moscow has been bracing for tighter restrictions.
Since the second quarter of 2023, more than 50 LNG vessels have changed ownership to companies based in the United Arab Emirates, according to Windward, a risk consultancy for shipowners and governments. Before then, such transactions were rare.
The risk and compliance team at ship tracking group Kpler said developments in the LNG tanker market pointed “to a complex web of maritime operations potentially linked to Russian interests”.
Some of the Dubai-based groups have opaque ownership structures, similar to those operating Moscow’s shadowy tanker fleet.
Some of the recently acquired LNG vessels are now sailing on routes traditionally used for the transportation of LNG. Russiaaccording to Kpler. Its ship tracking data showed a vessel carrying LNG from Yamal, Russia’s main export project that has not yet been hit by sanctions.
LNG has become increasingly important to Russia’s war economy, generating valuable revenue after the loss of pipeline exports to Europe since the full-scale invasion of Ukraine in 2022. Both the EU and Asia, major markets for Russian LNG, have refrained from imposing an import ban to avoid disruptions to the global gas market.
But the West has begun taking steps to restrict trade. In June, the EU approved restrictions that will forbid the offloading of Russian LNG from large icebreakers to smaller vessels in EU ports, significantly limiting Russia’s options for distributing its gas globally.
Russia’s major LNG project, Arctic LNG 2, has also been placed under sanctions by the US, making it increasingly difficult to ship cargo outside the project.
Traders say more opaque fleets could make it easier to trade projects under sanctions, as well as boost Russia’s operations in the market.
The surge in purchases has driven up the price of cheaper, less efficient LNG vessels that are more than 15 years old, according to data from SSY, a ship brokerage that facilitates sales of vessels between owners. An LNG vessel built in 2007 sold for about $50 million in 2022, but this year, one sold for $80 million.
“The market for older steam turbine LNG vessels has declined with increasing environmental regulations as well as dramatic improvements in LNG propulsion technology,” said Toby Dunipace, managing director of LNG at SSY.[But we have] seen a resurgence in the value of these types of vessels. Part of the explanation may be that they are going to the dark fleet.”
The developments have alarmed those in the industry already concerned about a rapid increase in the number of ageing vessels trading restricted oil, used by shipowners moving Russian cargoes outside the Western sanctions regime. Such vessels are less likely to be insured against disasters but are far more vulnerable to accidents and spills.
Dunipace said SSY’s LNG team always puts new clients through a sanctions check, but recent developments have brought the risks “much more into focus” as Russia prepares for future restrictions on LNG exports. He added that the brokerage has already had to turn away a handful of potential clients this year, including one last week, due to failed sanctions checks.
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Sergey Vakulenko, a senior fellow at the Carnegie Endowment for International Peace, said it was “obvious” that Russia wanted to build its shadow LNG fleets, with pressure “mounting” on Russian LNG.
With the risk of market disruption receding in the coming years as the U.S. and Qatar produce more LNG, Russian projects like Yamal LNG could face sanctions, he said.
“I think Russian LNG operators feel the writing is already on the wall and are preparing for it,” he said. “The trade-off is simple. If sanctions don’t happen, they have their own fleet and they use it, and if sanctions happen, they are not trapped and can continue their trade.”