Russia’s Arctic LNG 2 Files $1B Arbitration Claim for Canceled DSME Tankers
Disputes continue to mount related to the project for South Korean shipbuilders to build Russian LNG tankers supporting Russia’s Arctic LNG 2 project. Hanwha Ocean reported in a stock exchange filing that it has been hit with an approximately $1 billion arbitration claim by Arctic LNG 2 for damages related to the project, which was canceled due to the war in Ukraine and the subsequent sanctions. Hanwha Ocean is already defending itself against a prior approximately $850 million arbitration claim related to the same shipbuilding project.
Daewoo Shipbuilding and Marine Engineering (DSME) listed this same project among those that worsened its financial collapse that ultimately led to the sale of the company to Hanwha Group. DSME had reported in May, July, and November 2022 that it was canceling shipbuilding contracts for a total of three 172,500 cbm gas carriers, citing the inability of the shipowners to meet contractual payments due to the sanctions related to the war in Ukraine.
The order had originally been placed in October 2020, calling for DSME to build the three vessels for three Russian shipowners, who would in turn lease the ships to Sovcomflot for operations. The vessels were tied to the Arctic LNG 2 project developed by Novatek, which began production in August 2024. The three vessels were due for delivery by July 31, 2023, and DSME ultimately had contracts to build a total of six LNG tankers tied to the project, with the other three to be delivered to Mitsui O.S.K. Lines.
The three Russian shipowners initiated the first arbitration in Singapore in May 2023, claiming that the shipbuilder illegally terminated the contracts. They were seeking to force Hanwha Ocean, which had acquired DMSE, to fulfill the contracts. DSME and then Hanwha Ocean had completed building the vessels for Hanwha Ocean’s ownership. The shipowners are seeking $862 million in the ongoing arbitration.
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Hanwha Ocean now reports Arctic LNG 2 filed a second arbitration claim, which it was notified of on September 1. The company, 60 percent owned by Novatek, is seeking approximately $1 billion in damages regarding the breach of “Step-in Agreements” that Arctic LNG 2 had for the vessels in case the owners failed to complete their contracts.
Hanwha Ocean says the amount of the claim was provided without detailed specification and is likely to exceed the $1 billion figure. It says it will respond to the arbitration proceedings filed at the Singapore International Arbitration Center and will continue to strive for an amicable resolution.
