Macro

Two Russian Oil Tankers Critical to Sakhalin-2 Inactive Since April

Sakhalin-2 faces disruption with two of three tankers out since April, risking normal delivery rates to China.

By Mackenzie Crow

6/11, 07:19 EDT
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Key Takeaway

  • Two key tankers for Russia's Sakhalin-2 project have been inactive since April, straining shipment capacity to China.
  • Only one tanker, Zaliv Aniva, is operating normally; disruptions could impact the project's delivery rates.
  • Sovcomflot faces pressure from Western sanctions, with 21 vessels previously prevented from loading cargoes now being reactivated.

Disruption in Sakhalin-2 Oil Shipments

The Sakhalin-2 project, a major Russian oil venture, is facing significant logistical challenges as two of its three shuttle tankers have been out of operation since April. Typically, the project ships three to four cargoes monthly, all destined for China. The round trip, including discharge, averages about two weeks, a schedule manageable by three tankers and possibly two, but not by just one. The Zaliv Vostok, one of the tankers, has been anchored off various locations around Zhoushan Island since discharging at Ningbo in early April and has been at a yard on Xiaoqian Island since late April. The Zaliv Baikal, after loading a cargo on May 21, turned back from Ningbo and headed to the small Russian port of Zarubino, where it met with another Russian tanker, the Nikolay Zuyev. The Zaliv Baikal then returned to Zhoushan empty and may also be headed for maintenance. Only the Zaliv Aniva is operating normally, having discharged a cargo at Zhoushan on June 6 and returned to Sakhalin Island by June 10.

Replacing these tankers is not straightforward due to the specific bow loading system required for the Aframax-size ships used in the project. The project is due to receive two LNG-fueled tankers on a 10-year charter from Sovcomflot, but these vessels are currently employed elsewhere. The disruption comes amid Sovcomflot's public statements about pressure from Western sanctions, which have prevented 21 of its vessels from loading cargoes. Unless the Zaliv Vostok returns to service soon, the Sakhalin-2 project will struggle to maintain its normal delivery rate, with the first June cargo yet to begin loading by June 10.

Secretive Russian Oil Transfers

In a bid to circumvent US sanctions, the Russian oil tanker SCF Primorye conducted a secret cargo transfer near Singapore. Sanctioned by the US Treasury’s Office of Foreign Assets Control in October, the SCF Primorye did not load oil for about six months. In late April, it collected a cargo of Urals crude from Russia’s Black Sea port of Novorossiysk and embarked on a 7,500-mile voyage to a location east of Singapore. Upon arrival, the tanker vanished from the automatic identification system (AIS), which commercial vessels use to broadcast their locations. Satellite imagery later revealed that the SCF Primorye transferred its cargo to another vessel, the Ocean Hermana, on June 3. This transfer helps buyers distance themselves from dealing with a sanctioned ship and reduces the risk of further actions from the US Treasury.

The SCF Primorye, which held about 1 million barrels of oil, is owned by Sovcomflot PJSC. The Ocean Hermana, identified by its dimensions, deck configuration, and coloring, is about 20 years old and has an unknown insurer. It has mostly shuttled between locations around Singapore, the Malacca Strait, and ports in China. The operator, Sygnius Ship Management Pvt, denied involvement in any unlawful ship-to-ship operations. The SCF Primorye has resumed its journey, now empty, while the Ocean Hermana’s last signal indicated it was full. Another sanctioned vessel, the Bratsk, is following a similar route, carrying Urals crude and due to arrive off Singapore on June 17. More Sovcomflot tankers may follow, with seven disappearing from tracking after entering the Black Sea.

Europe’s Gas Pipeline Negotiations

European officials are in talks to keep gas flowing through a key Russia-Ukraine pipeline, with the current transit agreement set to expire at the end of the year. Despite efforts to reduce reliance on Russian gas, several Eastern European states still receive it through this pipeline. One option under discussion is for European companies to buy and inject gas from Azerbaijan into Russian pipelines heading to Europe, avoiding the embarrassment of buying Russian gas while trying to limit Moscow’s revenues. Ukraine, which earned about $1 billion in transit revenue in 2021, supports this idea. However, Azerbaijan’s current pipeline system is at full capacity, and a significant increase in exports would require infrastructure upgrades and new long-term contracts.

European gas prices remain sensitive to supply changes, with benchmark futures rising by 2.2% on Tuesday. Talks are in the early stages, with decisions expected toward the end of the year. Uniper SE, nationalized by Germany during the energy crisis, is involved in discussions. Slovakia, a key beneficiary, has expressed interest, with Prime Minister Robert Fico mentioning the possibility of importing gas from Azerbaijan. Russia still ships around 15 billion cubic meters of gas to Europe annually via Ukraine, mainly to Slovakia and Austria. The European Commission believes the bloc can withstand the end of Russian transit via Ukraine by relying on alternative suppliers and pursuing its climate strategy. However, some member states fear a repeat of the energy crisis, aligning their interests with Ukraine.