September 30, 2019 / 10:59 AM / 22 days ago

U.S. sanctions on COSCO hit LNG tankers in Russia's Arctic

LONDON (Reuters) - U.S. sanctions on two units of Chinese shipper COSCO hit the liquefied natural gas (LNG) tanker industry on Monday as U.S.-listed Teekay LNG (TGP.N) said its shipping joint venture in Russia had been “blocked” because of its ties to COSCO.

FILE PHOTO: A China Ocean Shipping Company (COSCO) container ship is seen at San Antonio port in Chile August 6, 2019. REUTERS/Rodrigo Garrido/File Photo

The United States imposed sanctions on COSCO Shipping Tanker (Dalian) Co and subsidiary COSCO Shipping Tanker (Dalian) Seaman & Ship Management Co for allegedly carrying Iranian crude oil.

Teekay LNG said on Monday that its 50-50 Yamal LNG Joint Venture had been deemed a “blocked person” under the sanctions because its partner China LNG Shipping (Holding) (CLNG) is 50% owned by COSCO Dalian.

“As a result of CLNG’s 50% interest, the Yamal LNG Joint Venture also currently qualifies as a ‘Blocked Person’ under OFAC rules,” Teekay said, referring to the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC).

“Teekay Group has not traded and will not trade with Iran and will not act in contravention of any trading sanctions,” Teekay said.

The venture owns Arc7-class LNG tankers capable of navigating through Arctic ice, making them key to transporting LNG from Novatek’s (NVTK.MM) Yamal LNG plant in northern Russia.

The LNG plant, surrounded by thick ice during the winter, is unique in operating in such harsh conditions. The Arc7 tankers take LNG westward to Europe in winter and eastward to Asia in summer when ice along the Northern Sea Route dissipates sufficiently to allow passage.

Its Yamal LNG project “has all the necessary capabilities to ensure the delivery of produced LNG to buyers within the agreed by contracts schedules,” Novatek said in a statement.

Teekay said it was working with its partners to resolve the issue.

SIZEABLE FLEET

The venture owns the Eduard Toll, Rudolf Samoylovich, Nikolay Yevgenov and Vladimir Voronin tankers, all newly built for Yamal, which began operations in December 2017.

Georgiy Ushakov, another Teekay Arc7 tanker, is now heading to Yamal after its sea trials around South Korea’s Daewoo Shipbuilding and Marine Engineering (DSME) (042660.KS) shipyard. A sixth, Yakov Gakkel, is undergoing tests.

A further nine Arc7 tankers serving the Yamal plant are managed by Dynagas (DLNG.N), Mitsui OSK Lines (9104.T) and Sovcomflot.

Yamal has been producing and shipping LNG above its expected capacity of 16.5 million tonnes a year (mtpa), shipping 12.8 mtpa so far this year.

“Everything is going without hindrance,” a source close to Novatek told Reuters when asked about the tankers’ movements.

The sanctions imposed Friday on the two COSCO units caused oil freight rates to spike as Asian oil buyers rushed to secure alternative vessels to load crude oil from the Middle East.

Average rates for Aframax and Suezmax oil tankers have jumped 50% to $30,000 a day since sanctions were imposed on Wednesday, said Ryan Hamilton, a Teekay spokesman.

LNG freight rates have jumped by between 7% and 11% in the past week to about $70,000 a day, shipping analysts said, though rates have been rising gradually in recent weeks as winter demand picks up.

The latest sanctions do not apply to other COSCO subsidiaries or affiliates, the Treasury Department said in a fact sheet distributed on Monday. Companies “do not face sanctions risk for engaging in transactions with COSCO, its non-blocked” subsidiaries or affiliates, the fact sheet said.

“For anyone not subject to U.S. sanctions jurisdiction it will ultimately come down to a question of risk appetite: Just because the U.S. authorities have the power to list people on this basis does not necessarily mean that they will do so in every instance,” said Anna Bradshaw, a sanctions lawyer and partner with Peters & Peters Solicitors LLP.

Additional reporting by Vladimir Soldatkin in Moscow and Gary McWilliams in Houston; Editing by Jason Neely, David Goodman and Cynthia Osterman

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