Ice around Finland's 3.9mn t/yr Inkoo terminal is making it difficult to secure cargoes, market participants have told Argus.
The waters in the bay of Finland and close to Inkoo are prone to ice in winter. And there are only 51 ice-rated LNG carriers in the global fleet — 15 of which are Russian Arc-7 carriers that are banned from delivering to Inkoo. Of these 51 vessels, only 10-15 are actually available, some traders estimate.
"There are a handful of ice-class vessels available in Europe," one trader told Argus.
Another trader added: "Most are owned by Novatek and Gazprom, and a couple are owned by Equinor, which leaves only Equinor valid in this equation." A third trader said less than 10 ice-class conventional ships are available for LNG, and that only a few have an A1 rating.
The scarcity and cost of ice-class vessels is pushing up shipping costs. Shippers can "take a chance" with a regular vessel, but would "eventually still be liable if it doesn't work" and that risk needs to be priced in too, a trader said.
Ice can damage the special coating many LNG vessels have to reduce water resistance. Vessels then need dry docking for a repaint and repair. A typical dry-docking cycle is 4-5 years, and seawater can corrode the hull if the coating is damaged, a coatings specialist told Argus. Extra repainting and more downtime means "lost money" for the shipper, a trader said.
Some firms are reluctant to deliver to Inkoo, traders say, citing problems with insurance and risk. Sellers are "likely to be more cautious when assessing the conditions", a trader said. "Weather and therefore ice conditions are never easy to forecast and can change suddenly."
Inkoo lies far from terminals in northwest Europe, leaving parties little scope to divert to other facilities. Only firms with experience delivering to adjacent ports, such as Lithuania's 2.9mn t/yr Klaipeda terminal, might be willing to go for the extra distance to Finland, a trader said.
Most vessels safe in light ice
Most normal LNG vessels have an ‘class II' ice rating, making them eligible for free ice-breaking assistance, the Finnish Transport Infrastructure Agency (FTIA) told Argus.
Finnish-Swedish rules define ice class II vessels as "ships that have a steel hull and that are structurally fit for navigation in the open sea and that, despite not being strengthened for navigation in ice, are capable of navigating in very light ice conditions using their own propulsion machinery". These vessels can receive free ice-breaking assistance, which is generally provided on a first-come, first-served basis, FTIA said.
That said, FTIA can limit the minimum size and ice class of ships entitled to icebreaker assistance. These restrictions are set "in order to ensure smooth winter navigation and the safety of navigation in ice", Finnish transport and communications agency Traficom said. "Assistance for ships with inadequate engine output or ice strengthening would be both difficult and time-consuming."
The FTIA could choose to exempt individual vessels from these restrictions and prioritise them if they are deemed "transports critical to Finland's emergency energy or food supply or essential industry", after consultation with the national emergency supply agency. Exemptions are made case by case basis on prevailing ice and weather conditions.
Restrictions were in place at Inkoo between 7 January and 4 April last winter but only for vessels below ice class II, so most LNG vessels would still have qualified for icebreaker assistance.
These rules mean using a normal LNG tanker to deliver to Inkoo carries significant risk. If ice becomes thick and stricter restrictions are imposed, then the tanker would be unable to reach the terminal unless given an exemption by FTIA. In extreme scenarios, even tankers designed for some ice navigation, but which are not classified at the highest level, could be restricted.
In a severe winter, it might be "really challenging for many sellers other than Equinor and SEFE to deliver LNG cargoes to Inkoo and a risk of failure to deliver may be rather high if non ice-class LNG tankers fail to reach Finland", a trader said.
Several traders also said it is unclear who is liable if a vessel is damaged by ice or if it fails to deliver. Such uncertainty will probably make shippers reluctant to send non ice-class vessels, significantly restricting the pool of potential sellers.
