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  January 3rd, 2018 | Written by

Russia Enacts Its Own Jones Act

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  • A loophole in Russian law grandfathers in stakeholders with existing foreign-vessel shipping operations.
  • Russia's largest independent natural gas producer has 15 ice-class carriers on order which will be flying foreign flags.
  • Shipping volumes on Russia’s Northern Sea Route could increase to 72 million tons in 2030, half of which will be LNG.

Russian lawmakers have passed legislation requiring that shipments—of oil, natural gas, gas condensate, and coal, extracted in Russian territory and loaded on vessels along the Northern Sea Route—be carried by ships flying the Russian flag.

It’s not exactly the same as the Jones Act that’s on the books in the United States, but it’s similar. The Jones Act requires all water shipments proceeding from one US port to another be carried by US-flag vessels manned with US crews. That has a big impact on ocean shipments to and from the US mainland and Alaska, Hawaii, Puerto Rico, and other locations.

The Jones Act is more expansive than the Russia law, because it covers all shipments and doesn’t limit itself to specific commodities transiting a specific route. On the other hand, the Russian law includes international shipments and not just domestic ones. Russia’s Arctic Northern Sea Route is emerging as an increasingly important link between the country’s Pacific coast and Europe.

The legislation, which passed the Federal Assembly last month, came on the heels of President Vladimir Putin’s pronouncement in mid-November that all shipments of oil and natural gas along the Northern Sea Route would be nationalized. The new law goes into force on February 1, 2018.

A loophole in the law, however, grandfathers in stakeholders with existing shipping operations involving foreign vessels. Companies that have entered into contracts to use foreign-flag vessels before February 1, will be allowed to continue those operations. That’s important to Novatek, Russia’s largest independent natural gas producer, which has a fleet of 15 ice-class LNG carriers on order for the company’s Yamal liquefied natural gas (LNG) project, all of which will be flying foreign flags.

Russia’s Northern Sea Route follows nearly 4,000 miles of Russian Arctic coast, from Novaya Zemlya in the west to the Bering Strait in the east. Published reports indicate that shipping volumes on the Northern Sea Route could increase to 67 million tons by 2025 and to 72 million tons in 2030, half of which will be LNG.