Sovcomflot’s gas division head Dmitriy Rusanov: "the share of gas carriers fleet accounts for about 11% of SCF Group’s revenue"

Sovcomflot is celebrating 5-year anniversary of its fleet of gas carriers. In a recent interview, Dmitriy Rusanov, head of the gas division of JSC SCF told PortNews how the company has managed to enter this market, about the current situation, the plans for the development of the ‘gas arm’ of SCF and about possibility of bunkering vessels with LNG.

- Dmitry, tell us about the five-year achievements of SCF’s gas division

- Five years ago, SCF started operating independently in a segment of transportation of liquefied natural gas (LNG). Actually, it’s never easy to enter into a new segment, the gas market in particular, which generally has always been somewhat of a closed "elite" club. And for good reason. After all, while the share of transport component in the cost of goods accounts only for a few percent in logistics of oil and petroleum products, when we deal with LNG shipment the cost of seaborne transportation makes up to one third, which determines the very close collaboration of the operator and shipowner. Under these conditions, oil and gas companies make high demands on the operators. Not surprisingly, the gas companies are too reluctant to let newcomers in the LNG market. Nevertheless, we have not only entered this segment but have proven as well our ability to compete successfully with global gas carriers owners. This is evidenced by the composition of our gas fleet, and the number of tenders we have won.

- What is the current structure of your LNG carrier fleet, what projects the vessels are engaged in?

 - At present the company operates six LNG carriers, which are involved in various Russian and international projects. In partnership with Japan's NYK, we operate four gas carriers in the framework of "Sakhalin-2" and Indonesian "Tango" projects. Two of our LNG vessels, which are in long-term charter from Gas Natural, are engaged this year in the project "Escobar" (Argentina), where they supply and transship LNG cargo to a RSFU. Two more liquefied petroleum gas (LPG) carriers are operating in the Caribbean, the Mediterranean Sea and the Indian Ocean. And finally, two modern LNG carriers built by order of Gazprom Global LNG. As you can see, SCF’s gas carriers are operating globaly, we cover all major regions of production and consumption of LNG. The agenda - the organization of the commodity transportation for the Arctic projects – the region with harsh ice and weather conditions. Today, the company’s fleet of gas carriers generates about 11% of SCF Group’s revenues.

- What role the LNG carrier fleet will play in the recently adopted strategy of SCF in the coming years and what are your plans for the future?

- Development strategy of Sovcomflot is aimed at its further expansion in the transportation of LNG and increasing the activity share in the company's portfolio. Having won a tender from a subsidiary of Gazprom, we have signed recently a valuable contract for long time-charter of two modern ice-class LNG tankers. Among bidders were more than a dozen of the world's gas companies. We have proved that our proposed project and the ships design will be the best in price and quality. The vessels will be fitted for transportation between nearly all existing LNG terminals. The booked cutting-edge gas carriers will be able to transport year round the cargo as well from Russia's first LNG project Sakhalin-2 as from the Shtokman gas condensate field.

Definitely, if we speak about the outlook of the most promising projects, this would be the Russian Arctic. Now there are two major projects – the Shtokman gas condensate field and the Yamal LNG. The concept of the Shtokman project involves the construction of gas liquefaction facility in the Murmansk region with LNG shipments from 2017. The project will require investment in the LNG fleet worth about US$ 4 billion. Another project - the Yamal LNG is implemented Novatek in conjunction with Total. SCF is working closely with the operating company, is developing an integrated maritime logistics of LNG from gas fields in the Yamal Peninsula. An effective solution for year-round marine transportation of LNG can determine the further development of the entire projects. The mention above projects only will require tens of modern LNG carriers, which determine their priority in the SCF Group’s strategy for the development of transportation of liquefied natural gas.

- What is the current situation on the market of chartering of sea-going tankers, including LNG carriers, the forecast of its trend?

- We may say this is the hard times on the market of vessels chartering. The third quarter performance is disappointing: tonnage overcapacity still does not allow ship owners to improve the profitability of tanker traffic. High oil prices and slowing global economic growth, which restrains the demand for raw material and its marine transportation. Throughout this year the tanker market is increasingly "sagging." The situation on the market of gas carriers is the other way round. The growth was driven by imports of LNG to Japan after the quake and tsunami and closure of some nuclear plants there.

But, given that there are 370 LNG carriers worldwide, largely operated on long-term charter agreements, as I have mentioned, only 5-10% of the total number of vessels are used on the spot market. In addition to Japan, the demand for LNG increased in other Asian countries: Houston-based Waterborne reported that imports of LNG in the Asia-Pacific region grew in the first quarter of 2011 by 20.4% over the same period last year. The company's report indicated that LNG imports in the region have been growing in the 19 straight months. The situation has led to a sharp increase in rates for gas carriers: Last year we see them taking off in space three times. Ship owners, realizing that this can make a profit, they began to place orders for gas carriers at the shipyards. Only the first 9 months of 2011 ordered an unprecedented number of LNG - 45 units. For comparison, in 2010, was commissioned only five LNG gas carriers. Price new building has increased as well, and it is expected that the LNG market will continue to climb until 2014, when the newly-built ships will be transferred to owners and will work in the market has decreased, thus the need for gas shipping.

- How can the implementation of innovative technologies affect the Arctic projects and the commodity transportation in harsh ice conditions?

- Marine transportation in the Arctic has its own twists and turns, well known by our specialists who had experienced throughout the years working in these harsh conditions. Each new project has its own characteristics. In developing the project, we also take into account the vessels design specifics, and especially possibility of their further operation, we also try to offer some new engineering solutions. Our experts monitor the latest global trends in the industry and embody them in newbuilds, asking shipbuilders to tailor them to each project. By the way, very soon we are opening in St. Petersburg our new engineering center that will also have Analytical Center for safety of navigation. The center will accommodate a unique center with a simulator for training of seafarers to navigate specialized vessels in difficult climatic conditions. This suggests that we stake on the Arctic transportation and strive to keep pace with the times, constantly updating our knowledge and introducing innovation. All this helps SCF remain the world leader in maritime transportation of energy sources.

- What are your predictions about the future of the Northern Sea Route - can this lane become and under what conditions a serious alternative to the traditional route through the Suez Canal?

- There is no doubt that the Northern Sea Route is promising for shipments of the goods from in the arctic and subarctic regions. Evidently, the possibility of time and cost savings should be used. Travelling along the northern shipping lane reduces the distance by 34% (about 3900 nm) and travel time by almost two weeks. Potential cargo flow volume is estimated at 50 million tons per year. This route promises new possibilities not only for Russia but for the world as well. And the experience of the test voyages, undertaken by SCF recently, will be useful for future transportation of energy resources. It is not excluded that with the start of shipments of LNG from the Shtokman gas condensate field the supply of gas through the NSR to the East may become urgent, but only in the summer months. Seasonality of the NSR is of the passage specifics.

- How do you assess the current situation and the outlook of the Russian shipbuilding industry in terms of its ability to construct modern LNG carriers?

- Russian Shipbuilding has a rich history and experience in the construction of vessels of different types and purposes. However, the industry is now facing scores of problems. There is a lack of technology, depreciation of productive assets, difficulties in funding the construction of newbuilds, the current tax system. I think that creation of new shipyards in conjunction with foreign partners could become an important element in the development of the domestic industry. Such projects do exist on the island of Kotlin in the Far East, such as a joint venture of Russia a South Korea, Zvezda-DSME Shipyard. SCF Group as a Russian largest shipping company booking newbuild orders prefers to award contracts to Russian shipyards or signing contracts with foreign shipbuilders includes an option for production of some elements in the country and the subsequent transfer of technology to Russia. For example, the recently concluded agreement of Sovcomflot with S. Korean shipyard STX for construction of an LNG tanker, I have mentioned above, allows for the possibility of gradual localization of the production, the construction of LNG carrier parts at Russian enterprises, and also provides for participation in the project of Russian suppliers of equipment: the vessel will have onboard domestic applications, such as ECDIS, positioning system "GLONASS", Russia made rescue equipment, screws, bow thrusters, and other components.

Interview prepared by SCF press office for PortNews, (translated by PN)