The Feasibility and the Economic Viability of Shipping LNG via the Northern Sea Route

Abstract

The melting of the sea-ice in the Russian Arctic has lead to a stronger optimism than ever before as regards the supply of Norwegian LNG to Asia-Pacific via the Northern Sea Route (NSR). The successful completion of the world’s first LNG supply via the NSR by the Ob River in 2012 has been to a large extent highlighted in the media. International oil & gas companies operating in northern Norway and Russia should see here promising opportunities to ship LNG via the NSR during the summer season. The dissertation investigates the feasibility and the economics of the shipping of LNG via the NSR. The objective of the thesis is also to clarify and understand some crucial aspects, should shipping LNG on this new route occur one day. The analysis presents a qualitative approach for the feasibility part. A more quantitative and numerical approach is carried out for the economic viability. The study evaluates the profitability for a trader of shipping LNG via the NSR compared to the Suez Canal route for a round trip Hammerfest-Yokohama. Further on, the economics of an annual regular service via the Suez Canal and a service via the NSR during summer with the Suez Canal for the rest of the year are compared. The models analyze also the advantage of operating a Triple-Fuel Diesel-Electric (TFDE) LNG carrier rather than a Steam Turbine (ST) vessel on these routes. In a second part, an annual voyage plan is simulated in order to show how the trader can benefit from arbitrage opportunities on gas prices across the continents and to see how shipping via the NSR can be linked to exit strategies. The dissertation will also analyze the net present value of a 15-year LNG trading project and value an extension option of five years on a 15-year Time Charter contract. Different comprehensive sensitivities on the results are carried out to deal with uncertainty, flexibility and to remedy with possible erroneous assumptions.