LNG

Nakilat, one of the world’s largest LNG shipping operators, has partnered with the American Bureau of Shipping, the US classification society, to develop a decarbonization strategy.

US attorneys general in Democratic Party-ruled states and cities have started a new campaign against hydrocarbons by trying to force the government regulatory agency, the Pipeline and Hazardous Materials Safety Administration (PHMSA), to ban for ever all transportation of liquefied natural gas by rail.

A coalition of 14 state attorneys general have urged the PHMSA to turn a suspension order on allowing bulk transport of LNG in specialized rail-car tanks into a total ban.

The rule opening the way for LNG transportation in rail cars was created after a 2019 executive order by the Trump Administration, which prompted the Department of Transportation to regulate LNG the same “as other cryogenic liquids and permit LNG to be transported” in approved rail-car storage tanks.

The PHMSA has noted that LNG is allowed to be transported by rail in Canada, Europe and in Japan.

“LNG is permitted to be transported by rail in Europe in specially designed tank cars and in Japan, LNG has been authorized to be transported by rail since 2000, in specially designed freight railcars and container railcars,” the agency said.

However, the Democratic Party AGs also brought in anti-hydrocarbon arguments by stating that allowing companies to transport LNG could “potentially create more greenhouse gases from LNG production and from liquefaction” plants.

The coalition of AGs is led by the state of Maryland’s Brian Frosh and New York’s AG Letitia James.

Policy confusion

The federal agency in the initial suspension of rail transportation of LNG had referred to public concerns about transporting the fuel and ordered a suspension pending further studies.

The PHMSA said at the time that its move was necessary to help companies interested in shipping LNG by rail to suspend investments in infrastructure that would be facing further regulations.

However, instead of enacting more thorough regulations, the coalition called for the “prompt suspension” of the final rule indefinitely.

The AGs claimed that the go-ahead for transporting LNG by rail was based on “flawed safety assessments” by officials of the former Administration.

“While repeal of the 2020 rule would be the most durable corrective action, the states support prompt suspension of those regulations in the meantime,” the coalition of AGs wrote in comments to the Biden Administration.

Many of the same AGs submitted comments against the final rule when it was proposed in January 2020. The AGs also had joined a lawsuit against the rule in August 2020.

No LNG was transported by rail between the final rule’s approval and the PHMSA’s November suspension. 

The PHMSA said it was aiming to ensure shipments did not occur before the new rules were in place, which is expected by June 2024. 

The Northern Sea Route (NSR) from Arctic Russia to North Asia has reopened earlier than in recent years, providing scope for LNG shipments to be re-directed from the Atlantic Basin to Pacific Basin as prices remain low, though are rising faster in Asia.

The NSR is officially defined by Russian legislation as lying east of Novaya Zemlya archipelago and specifically running along the Russian Arctic coast from the Kara Sea to the Bering Strait to enter the Northern Pacific Ocean.

The 172,600 cubic metres capacity Arctic-class LNG carrier “Christophe de Margerie” left the Yamal LNG export plant in Northern Siberia, operated by Novatek, on May 18 and is scheduled to arrive at the Chinese Tangshan import terminal on June 11 after a transit of 23 days.

The Tangshan terminal is in the northern Chinese Hebei province and is operated by PetroChina.

Shipping data shows that the “Christophe de Margerie” is accompanied by another tanker and two nuclear-powered ice-breakers, the “Yamal” and the “Vaygach”.

It is only in recent years that the NSR has started to be used earlier by LNG carriers pushing ahead to deliver cargoes to North Asia.

The 172,600 cubic metres capacity LNG carrier “Vladimir Rusanov” was the first vessel to use the NSR in 2019, having lifted a cargo at the Yamal plant in mid-June.

However, the “Vladimir Rusanov” is in Western European waters and scheduled to discharge a cargo on May 24 at the Montoir-de-Bretagne terminal in Western France.

According to analysts, the early availability of the NSR, coupled with a slowly opening Europe-Asia LNG arbitrage window - at historically low values - will result in a redirection of many Yamal cargoes away from Europe and to be pointed at North Asia.

Three other carriers are currently heading back to the Yamal plant's port at Sabetta from Europe and at least one could lift an Asia cargo.

They are the two 172,000 cubic metres capacity vessels, the “Georgiy Brusilov” and the “Vladimir Vize”, and the 172,600 cubic metres capacity carrier “Vladimir Voronin”, with arrivals scheduled before the end of May, according to shipping data.

The re-opening of the NSR comes as the Platts Japan-Korea Marker spot cargo price for North Asia cargoes for July is at $2.280 per million British thermal units and at $2.425 per MMBtu for August, higher than several weeks ago.

That’s as the European LNG price indicators, the UK National Balancing Point and the Dutch Title Transfer Facility, were lower at the equivalents on May 20 of $1.40 per MMBtu and $1.55 per MMBtu respectively.

There is currently a wider debate in Russia about accommodating much more energy shipping traffic on the NSR as usage increases.

Russian oil company Rosneft is progressing with the development of its Vostok Oil Project, a venture that is projected to deliver 25 million tons of shipments from a special seaport via the NSR by 2024.

The oil project is based on the development of several fields, including at least three in the Vankor area.

Vostok Oil will also include the development of 15 new industry towns, two airports and about 800 kilometres of new pipelines.

The traditional NSR that has been the main reference point in Russian Arctic shipping is now being debated by the government.

Growth in shipments on a wider route have been rising. Russian government data shows that in 2019, a total of 31.5 million tons of shipments were transported on the NSR, an increase of over 55 percent from 2018.

Most of the extra shipments were LNG from the Yamal plant.

Now the Russian government is referring to the Northern Sea Transport Corridor and has drawn up a report on increasing traffic volumes.

According to the Association of Sea Trade Ports, the transport corridor will be clearly referred to in the new Russian Arctic Strategy, a document that now awaits approval by the government.

The document has been written by the Russian Ministry of the Far East and Arctic and was submitted to the government on 7th of May 2020. The strategy covers the period until 2035.