Daewoo Shipbuilding Cancels LNG Carrier Order Linked to Sovcomflot

The challenges for Russian tanker operator Sovcomflot continue with the restrictions from the European sanctions now reaching the company’s newbuilding orders while reports indicate that the ship sales are also continuing. In a stock exchange filing, South Korean shipbuilder Daewoo Shipbuilding and Marine Engineering announced the cancelation of the first LNG carrier as part of three ship contract. DSME had received the orders from the Russians as part of a larger newbuilding program split between South Korea’s large shipbuilders and Russia’s Zvezda shipyard.

The South Korean shipyard said in its filing that an unnamed customer had failed to make an installment payment on a contract that it received in October 2020. DSME canceled the first of the three LNG carriers valued at approximately $270 million as part of the approximately $800 million order. Korean media is saying that the Russians failed to make the second installment on the contract. DSME said it had canceled the first ship to protect its rights but that the order for the second and third vessels currently remain in effect. The Korean media reports suggest that they are facing a similar deadline for the installment payments for the next two vessels.

The sanctions enacted by the European Union had a deadline of May 15 for the financial institutions to wind down their dealing with Sovcomflot. The UK imposed similar financial sanctions but extended the deadline to the end of June. 

The shipbuilding order was originally placed in October 2020 for three ice class Arc 7 LNG carriers each with a capacity of 172,410 cbm. The vessels were to have been operated under a charter to NOVATEK and its subsidiaries Yamal LNG and the Arctic LNG 2 project. Sovcomflot said the new generation of vessels was designed to have increased speed and maneuverability from their propulsion system comprised of three Azipod units. The three vessels along with a second order for three additional vessels also included Japan’s Mitsui O.S.K. Lines (MOL) and was part of the effort to build year-round navigation along the eastern section of the North Sea Route.

Sovcomflot planned to build a total of 15 vessels at Zvezda as well as the orders placed with DSME and Samsung Heavy Industries in South Korea for additional LNG carriers. The first three vessels built by DSME were scheduled for delivery in February, April, and July 2023. The second three are scheduled for delivery starting with one in April 2023 and the other two in February and August 2024.

Samsung Heavy Industries recently said that it was proceeding with the construction of the three vessels ordered from its yard. The hulls are being built in a partnership with Zvezda, but it is believed that they too have installment payments due in the coming weeks. Samsung had reported that they were able to complete the delivery at the end of March 2022 of another oil tanker from a previous order for Sovcomflot. A second vessel, however, was reported to be nearing completion on that order.

Earlier this week, Sovcomflot confirmed that it had sold what it called older units from the fleet as part of an effort to reduce its indebtedness with the western banks. The company confirmed the sale of 14 vessels but Lloyd’s List is speculating that the actual number is now approaching at least 23 vessels with several transactions yet to be completed.