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July 4, 2022

DSME cancels second LNG carrier order tied to Russia’s Sovcomflot

The move follows a similar cancellation from May, which was also related to Russian state shipping company Sovcomflot.

Understand the impact of the Ukraine conflict from a cross-sector perspective with the Global Data Executive Briefing: Ukraine Conflict

South Korea-based Daewoo Shipbuilding and Marine Engineering (DSME) has abandoned a second order for a liquefied natural gas (LNG) carrier, following a payment deadline failing to be met.

The move follows a similar cancellation from May, which was also related to Russian state shipping company Sovcomflot .

In October 2020, Sovcomflot awarded DSME a contract to construct three LNG carriers and additional vessels. These were to be run by Japan-based Mitsui OSK Lines to support Russia’s gas operations.

In a statement, DSME said: “As the shipowner did not pay the shipbuilding price for one LNG carrier within the due date, the company notified the contract termination.

“The contract has conditions that the shipowner must fulfill and, if the conditions are not met, the contract may be cancelled.”

Amid Russia’s military attack on Ukraine and subsequent sanctions on the firm, Sovcomflot has failed to make payments since spring.

The three Arc7 LNG carriers were ordered by Sovcomflot to be used for the Arctic LNG 2 project.

The original value of the contract was around $850m, but it was reduced to approximately $520m following the cancellation of the first vessel order.

As a result of the second vessel order being cancelled, the contract value now stands at around $260m.

In May, ship insurers from Western countries terminated cover for Sovcomflot in light of Russia’s invasion of Ukraine.

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