$3.3 billion! Hongxing Shipyard is expected to receive another order for 10 icebreaking LNG carriers

Zvezda, Russia's largest shipyard, is about to receive another order for 10 Arc7 ice-class LNG carriers worth a total of US\$3.3 billion. These vessels are intended for Novatek, a Russian energy giant, for its Arctic LNG 2 project in the Arctic. This marks the first time a Russian shipyard will build large LNG carriers, making Zvezda the second shipyard globally to build Arc7 ice-class LNG carriers.

Novatek's Arctic LNG project is about to sign a contract for 10 ice-class LNG carriers.

On July 3, Igor Tonkovidov, CEO of Sovcomflot, a Russian state-owned shipping company, revealed that Sovcomflot, Novatek, and Zvezda shipyard plan to sign an order for 10 ice-class LNG carriers in July. Each vessel will have a separate construction contract, and all 10 contracts will be finalized in July.

According to International Ship Network, Novatek has selected Zvezda shipyard to build 15 ice-class LNG carriers for the Arctic LNG 2 project. Construction slots have been reserved at Zvezda, with an estimated price of US\$330 million per carrier, totaling nearly US\$5 billion for the project.

Last April, Sovcomflot ordered the first Arc7 ice-class LNG carrier from Zvezda shipyard, scheduled for delivery by the end of 2022 and ice trials by April 2023. Early this year, Smart LNG, a joint venture between Sovcomflot and Novatek, ordered another four, scheduled for

delivery in 2023.

The design of this series of LNG carriers at Zvezda shipyard will draw on the operational experience of the "Christophe de Margerie," the world's first ice-class LNG carrier built by Daewoo Shipbuilding. These ice-class LNG carriers will use GTT's Mark III cargo containment system, utilize LNG as the primary fuel, and have a power output of 45 megawatts—comparable to a nuclear-powered icebreaker. They can safely transport LNG while breaking ice up to 2.1 meters thick at -52 degrees Celsius, meeting all requirements of the Russian Federation.

        The Arctic LNG 2 project is a major LNG development project led by Novatek. Shareholders include Novatek (60%), TotalEnergies (France), CNPC and CNOOC (China), and the Japan Arctic LNG company, a joint venture between JOGMEC and Mitsui (Japan), each holding 10% except for Novatek.

The project is located on the Gydan Peninsula in northern Siberia, adjacent to the Yamal LNG project. Arctic LNG 2 comprises three production lines, each with a capacity of 6.6 million tons per year, or a total of 19.8 million tons per year. Novatek plans to commission the first line in 2023, the second in 2024, and the third in 2025, reaching full capacity in 2026. However, company representatives have indicated that the first and third lines may be operational earlier, in 2022 and 2025 respectively.

        With the order for ice-class LNG carriers for the Arctic LNG 2 project, Zvezda shipyard will become the first shipyard in Russia to build large LNG carriers and the second globally after Daewoo Shipbuilding to build Arc7 ice-class LNG carriers.

According to Russian government requirements, the ice-class LNG carriers in the Arctic LNG 2 project must be built by the state-owned Zvezda shipyard, and components must be manufactured within the Eurasian Economic Union. Established in 2015, the Eurasian Economic Union includes Russia, Kazakhstan, Belarus, Kyrgyzstan, and Armenia.

The Russian Export-Import Bank, which is providing financing for the construction of these ice-class LNG carriers, has also stated that a key condition of the project is that the ice-class LNG carriers must be produced and built at the Zvezda shipyard in Russia to ensure greater localization of the project. This requirement is mandatory. The Russian Export-Import
Bank is a wholly state-owned development bank of the Russian government.

Last year, the Russian government decided to provide Zvezda shipyard with a subsidy of approximately 50 billion rubles (approximately US\$701 million) for the construction of ice-class LNG carriers, to offset the difference between Zvezda's construction costs and the current market prices of South Korean and Chinese shipyards.

Zvezda shipyard is Russia's largest shipbuilding group, established by a group of Russian companies led by Rosneft based on the Far Eastern Ship Repair Center (FESRC) in Bolshoy Kamen. Rosneft stated that the construction of ice-class LNG carriers at Zvezda shipyard will mark

        the first time a Russian shipyard has built such vessels. It should be noted that the former Soviet Union never built such vessels and had been purchasing them from overseas for many years.

  The construction project of Zvezda shipyard is personally overseen by Russian President Vladimir Putin and is a key project in Putin's plan to revitalize Russia's shipbuilding industry. On September 1, 2016, Zvezda shipyard held a completion ceremony for the first phase, attended by Putin himself, who inspected the construction site. In 2017, Putin also visited Zvezda shipyard during his inspection of Primorsky Krai.

According to the plan, the construction of the second phase will be completed in 2024. At that time, Zvezda shipyard will be able to build large LNG carriers, drilling ships, FPU/FPSO/FLNG, pipelayers, and various offshore drilling platforms and marine equipment, becoming Russia's largest modern shipyard and the first domestic company specializing in the manufacturing of large marine vessels.