Russia's new Arctic crude shipments to China delayed by thick ice

Two of Russia's first Urals crude shipments from its Baltic Sea export terminals to China via the Arctic have been held up due to thick ice, according to tanker-tracking data, highlighting the challenges Moscow faces in promoting a faster transit route to Asia after sanctions shut off its crude flows to Europe.

Navigation via the Northern Sea Route -- which allows vessels to travel east from the Barents Sea through the Bering Strait and then down to the Pacific Ocean during summer months-- was first tested in 2010 helped by receding Arctic ice levels due to global warming.

That year, Novatek sent an Aframax with condensate from Russia's Barents Sea Murmansk terminal to China's Ningbo Port in 22 days, in the first voyage of the large vessel via the path.

It took around half the time of the traditional route through the Suez Canal. In November 2022, the tanker Vasily Dinkov traveled from near Murmansk to Rizhao in around four weeks.

Last month, two ice-class tankers --the 115,000 dwt Primorsky Prospect and the 111,000 dwt NS Arctic -- picked up about 1.5 million barrels of Urals from Russia's Baltic ports of Ust Luga and Primorsk to deliver them to buyers in Northern China, S&P Global Commodities at Sea data showed.

The shipments, some of the first to ply the Arctic route from the Baltic to China, were initially estimated to take 32 days to complete the voyage. Now entering the Pacific Ocean, the tankers were expected to complete the passage in 46-47 days, a similar voyage time to the traditional route via the Suez Canal.

Although accompanied by an ice-breaker ship, the two tankers spent 10 days alone transiting only part of the East Siberian Sea, where the sea ice extent was relatively high compared with recent years, according to National Aeronautics and Space Administration data.

The tankers were due to arrive at China's Dalian and Rizhao ports on Aug. 28, CAS data showed.

"I assume this is due to challenging ice conditions, which required vessels to slow down," said Gibson Shipbrokers Principal Analyst Svetlana Lobaciova, estimating the sailing speed was as slow as 4 knots at times between Kara Sea and Chukchi Sea versus the normal level of 12.5 knots.

Cost threat

Russia has long cited fuel savings due to the supposedly shorter sailing time as one of the key advantages for Northern Sea Route oil transits. Although its value has largely recovered from post-war lows, Urals loaded at Primorsk is still trading at a $15/b discount to Dated Brent, according to the latest assessment by S&P Global unit Platts, supporting the appeal of Russian crude for Chinese refiners.

But the latest NSR voyage delays raise fresh doubt over the commercial viability of the route, as climate conditions in the area remain harsh and the ice situation changes quickly potentially wiping out fuel cost savings on the shorter voyage.

While the route's navigational season can last from July to November, ships still need to be escorted by ice-breaking vessels when ice conditions are not favorable. The push for more Artic oil shipments could have stretched Russia's technical capacity and delayed sailings.

Russia has three atomic icebreakers working the Northern Sea Route as a whole, plus a nuclear-powered ice-breaking container ship on the route, and other ice-breakers under repair, according to state-owned nuclear company Rosatom that operates such vessels.

Shipowner Sovcomflot, a Russian state-owned carrier, did not respond to a request for comment.

"The Russian NSR oil shipments to China are ramping up lately, but from a very low base," said John Webb, a research associate director at S&P Global Commodity Insights. "Given the logistical and other challenges, this will almost certainly remain a secondary Russian export route to China compared with the traditional route and pipeline exports."

Increasing flows

Faced with an EU oil embargo, Russia still hopes to boost oil deliveries to Asian markets via exploiting the Northern Sea Route, whose shipping distance is up to 40% shorter than the usual trade lane via the Suez Canal.

With ice levels expected to recede further due to warmer temperatures, Russia aims to increase total cargo volumes via the trade lane to 36 million mt in 2023 from 32 million mt in 2022, before a jump to 80 million mt in 2024, according to the Ministry of Transport.

Indeed, four Aframaxes and one MR tanker were transporting nearly 3.45 million barrels of Russian oil to China through the Arctic shipping lane, a level unseen in the past, according to Kpler shipping data Aug. 17.

Aside from the NS Arctic and Primorsky Prospect, the 41,457-dwt Shturman Koshelev and the 117,153-dwt SCF Baltic lifted from Arctic ports in July and the 113,232-dwt Korolev Prospect earlier in August.

Separately, S&P Global data showed the 49,999-dwt SCF Irtysh lifted 317,000 barrels of naphtha from Ust-Luga on Aug. 5 for a voyage to Zhuhai, also in China.