Arctic LNG 2, the Russian liquefied natural gas venture majority-owned by Novatek, is pursuing roughly $1 billion in damages from South Korean shipbuilder Hanwha Ocean after the yard terminated construction contracts for ice-class tankers. The claim, disclosed by Hanwha in a filing dated September 3, lands at a moment when the project’s ability to move cargo remains constrained by U.S. sanctions and the shipyard’s order book for Russian-bound tonnage has evaporated.
The claim and the contract
Hanwha Ocean, the former Daewoo Shipbuilding and Marine Engineering, revealed that Arctic LNG 2 filed a demand for 1.37 trillion won, about $1.02 billion at current rates, with the Singapore International Arbitration Centre. The dispute centers on a shipbuilding agreement that the yard ended. Hanwha’s disclosure does not specify which of the six originally contracted Arc7 vessels are at issue, nor does it detail the contractual termination provisions or any break fee that might apply.
Sanctions cut the fleet
The original program called for six Arc7 carriers: three ordered by Russia’s Sovcomflot and three by Japan’s Mitsui O.S.K. Lines. Hanwha has previously stated that the Sovcomflot trio was canceled because U.S. sanctions on Russia made performance impossible. That explanation aligns with the broader pattern of Korean yards walking away from Russian energy shipping contracts after 2022, but the arbitration claim suggests Arctic LNG 2 views the termination as a breach rather than a force majeure event.
Production without a fleet
Novatek started production at Arctic LNG 2 in December 2023, yet the first cargoes did not reach end-users, all located in China, until August 2024. The project’s design capacity is 19.8 million metric tons a year, but without the full complement of ice-class tankers, export logistics depend on a limited pool of available vessels and transshipment arrangements. The arbitration seeks to recover costs tied to that shortfall, though the claim amount does not break out direct losses versus consequential damages.
What to watch
The Singapore seat and the won-denominated claim point to a contract governed by Korean law with international arbitration, a standard structure for Korean shipbuilding deals. Novatek has not commented. The tribunal’s first procedural orders will clarify whether the claim proceeds on the full six-vessel scope or only the three Sovcomflot slots, and whether Hanwha raises sanctions as a jurisdictional bar or a merits defense. A ruling could set a precedent for other sanctioned Russian energy projects with Korean yard commitments.