Igor Tonkovidov: Our plan is to consistently reduce our environmental footprint

Igor Tonkovidov, President & CEO of SCF Group, told PortNews how the company facilitates the development of navigation along the Northern Sea Route, how the pandemic impacted the shipping industry, and why LNG will remain the number one alternative fuel in the foreseeable future.

This year, SCF’s LNG carrier Christophe de Margerie completed an early eastbound voyage along the North Sea Route. What is your assessment of this voyage? What difficulties arose during the voyage? Do you plan similar early voyages in the future?

In the eastern sector of the NSR, navigation typically starts in July. Our LNG carrier Christophe de Margerie became the first large-capacity vessel of her size to transit this route eastbound two months earlier than normal, in May, when ice conditions in the eastern sector remain challenging.

Such an early voyage was made possible following an exhaustive risk assessment study conducted at the planning stage, based on our extensive experience of operating in the Arctic as well as by careful consideration of various navigation scenarios together with NOVATEK, our charterer, and Atomflot, our partner in the Arctic.

Pre-voyage preparations included detailed analysis of anticipated ice and hydrographic conditions along the planned route, in collaboration with the Arctic and Antarctic Research Institute and ScanEx. Our specialists, with significant experience of operating vessels in the Arctic and analysing satellite data of ice conditions, were also closely involved in this assessment.

During her voyage along the Northern Sea Route, the LNG carrier was escorted by the nuclear icebreaker Yamal. We expect that in the future, the use of next-generation Project 22220 nuclear icebreakers will further improve the efficiency of ice escorts and reduce the NSR transit times. These icebreakers, currently under construction, surpass Yamal in terms of power capacity and hull breadth.  

As for the ice conditions, they matched our forecasts. Certainly, in some areas, thick hummocky ice fields, plastic deformation of ice and ice pressure impacted progress. However, the crews of the icebreaker and our LNG carrier were well prepared to handle these obstacles, and in terms of navigation techniques, this did not create any serious difficulties for either vessel.

As anticipated, the most challenging parts of the route proved to be the Vilkitsky Strait, where the vessels observed numerous icebergs, as well as the East Siberian and the Chukchi seas, where the passage through the ice fields was complicated by severe hummocking and ice pressure. In these areas the ice was free-moving, rather than being attached to the shore, which required our vessel to use her maximum power when underway.

The most favourable ice conditions were encountered in the Laptev Sea, where the Christophe de Margerie sailed a significant distance through open water due to a notable clearing in the shore fast ice.

In general, the ice conditions allowed the vessel to maintain her pre-determined route. The only deviation occurred in the East Siberian Sea. Initially, the vessel due to travel along the traditional route through the Long Strait, but the ice reconnaissance indicated that easterly winds had created significant ice pressure in the strait, so both vessels actually bypassed Wrangel Island to the north.

This season the ice conditions in the eastern sector of the NSR match those observed over the past few years (i.e. the average). That said, the ice conditions were less challenging than the long-term average conditions recorded over a 30- or 40-year period.

It’s worth noting that during the passage along the NSR, we limited the vessel’s speed to that which we considered safe under the observed ice conditions. The vessel’s engines operated close to their peak capacity for only 12 per cent of the voyage time.

How late might eastbound navigation along the NSR end this year? Do you plan to repeat such early voyages in the future?

The vessel is under commercial charter to the cargo owner, Yamal LNG, which ultimately decides when and in what direction the vessel travels, East or West of Yamal. This decision depends on commercial considerations as well as the ice conditions.

Of course, year-round navigation along the NSR is the goal for the future. The objective for this voyage was to prove the possibility of having a large-capacity cargo vessel safely transit eastbound across the full length of the NSR in May. This will now significantly expand the navigational window available for transits.

We always act with caution, step by step, as our corporate philosophy of ‘Safety Comes First’ encourages us to do. Each new step must be properly assessed and planned.

The successful early voyage of Christophe de Margerie proved that this navigational window can be significantly expanded when using vessels that are appropriately built and suitable for navigation in the ice conditions of the NSR. 

The voyage also facilitated a further detailed assessment of the icebreaking, manoeuvring and structural capabilities of this series of LNG carriers, as well as of maximum acceptable crew fatigue under the impact of vibration, noise, continuous work in challenging ice conditions, and the need for constant manoeuvring together with the icebreaker or independently.

We successfully tested the remote online monitoring of the vessel’s key equipment and mechanisms to promptly detect and correct possible malfunctions on board. Detailed data were collected on the vessel’s equipment performance under the challenging ice conditions. In particular, the manufacturer of the vessel’s cargo containment system (GTT) and the manufacturer of her propulsion units (ABB), which are some of the vessel's key systems, both collected such data and provided remote diagnostics.

Data collected during this voyage will be reflected in the design of future generations of Arctic vessels, including icebreakers and cargo vessels with a high ice class.

Are you willing to share your experience with other companies that wish to work in the Arctic?  

First, we aim to make the practical knowledge we have accumulated available to cadets from Russian maritime universities who undergo practical training aboard our vessels and plan eventually to join our crews.

It is encouraging to note that cadets are increasingly interested in our work in the Arctic. Our aim is to share our experience and knowledge with the younger generation, who will replace us both onshore and at sea, and pass this competence on to them.

At the same time, our experience of safe navigation along the Northern Sea Route will certainly be reflected in the practical recommendations that we publish annually and will become part of the company's core competencies.

In addition, I should like to stress that we are ready for long-term close cooperation with various organisations involved in ensuring safe shipping in the Arctic, as well as for integrating analytical and information resources to ensure the most reliable and secure transport infrastructure along the NSR.

The company achieved excellent results in 2019 and in Q1 2020. What were the determining factors? Can we expect the forecast until the end of 2020 to be favourable?

A positive financial outcome resulted from a combination of many factors, sometimes divergent ones.

Speaking of the first half of 2020, one of the key positive factors was the gradual recovery of the global tanker market after a prolonged three-year decline in 2016-2018. The increase in rates was particularly noticeable in Q4 of last year and in Q1 this year. 

I wish to note that SCF was well prepared to take advantage of this recovery. We are constantly working to ensure our commercial and technical fleet management services work seamlessly together under various market scenarios.

Our chartering policy, as you know, involves careful planning of both the geographical distribution of the fleet and the duration of charter contracts, maintaining an optimal balance between long-term, medium-term and short-term charters. This allows us to ensure greater financial stability in the medium-term, while taking advantage of the opportunities that open up when market dynamics improve.

An important factor, of course, is the company's constant efforts to improve the efficiency of technical and commercial fleet management, as well as maintaining a leading technological position within the industry. All this has an economic impact that is reflected in our financial figures.

I should like to emphasise that the company's outstanding results are only possible through the concerted efforts of all SCF employees, both at sea and onshore, for which I am especially grateful.

You have noted that global charter rates have been recovering since the fourth quarter of last year. Have they reached a plateau, so to speak, or will they continue to grow?  

Our forecast for the second quarter was correct. During this period, rates were at relatively high levels. At the same time, in April and May, the tanker industry fully felt the negative consequences of several global factors, including the COVID-19 pandemic leading to the decline in oil demand, as well as the OPEC+ deal revision leading to a sharp reduction in cargo volumes across the world. All of this has ultimately contributed to freight rates now decreasing.

Nevertheless, the operational accounting data for Q2 2020 allows us to be optimistic about the results for this period and, considering the Q1 results being, for the entire first half of the year as well. I am confident that the company will fully meet its financial and operational performance targets set for H1 2020.

Typically, we see a seasonal decrease in the level of freight rates over the summer, which gives us reasonable grounds to believe that the market dynamics in Q3 will be similar to those witnessed over the same period in the past three or four years.

You have already noted that the pandemic has had a negative impact on the shipping market. What other difficulties arose due to the pandemic? A lot was said about the difficulties with crew rotations – how did you manage to overcome these challenges?

It is still difficult to accurately estimate and predict the duration and scale of the pandemic’s impact on the shipping industry. What is clear, however, is that this impact is definitely adverse.

Disconcertingly, many states are trying to limit the number of foreigners entering their territory as much as possible.

It is worth remembering that the International Maritime Organization (IMO) calls on all countries to maintain a special regime for the transit of seafarers, to allow them both to be signed off from vessels and to join them. This is necessary in order to allow seafarers to observe their work and rest schedules. Unfortunately, some countries and regions around the world still do not address these issues in accordance with the IMO’s recommendations.  

From our side, we continue to do everything possible to ensure that seafarers return home safely and to allow new crews to reach their vessels. We have optimised our crew rotation schedules to change larger groups of crew members at one time, when a vessel calls at a Russian port, as opposed to our usual practice of replacing crews more gradually, to maintain continuity aboard a vessel. In some cases, we extend the terms of employment contracts and staff are normally receptive to that.

In general, we remain able to protect our employees from the impact of the pandemic and ensure all our operations remain uninterrupted. Between 90 to 100 per cent of our shore-based personnel have transferred to remote working, thanks to our timely integration of digital solutions into all core operational management processes.

We do everything necessary to minimise the health risks for crew members, including carefully monitoring the health of each crew member before boarding, during their contract and during changeover. All new crews are admitted onboard only after taking a coronavirus test, spending two weeks under observation, and then passing a second test. We strictly comply with all the regulations of the Russian federal authorities and requirements of Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rospotrebnadzor).

Unfortunately, in some cases local authorities impose additional requirements, which often do not match those at a federal level. This has led to crew rotations being unexpectedly delayed and even canceled, which directly violates the labour rights of seafarers. We had to address this situation in the Murmansk and Khabarovsk regions. With the assistance of the Ministry of Transport, it has been possible to resolve these issues on a case-by-case basis. However, I should like to emphasise that a systematic solution is required. Certain recommendations have been issued by Rospotrebnadzor, and we would like the local authorities to follow them to the full extent. We actively cooperate with the Seafarers Union of Russia on this issue and rely on their support.

SCF has repeatedly stated that it strives to maintain its technological leadership. What steps does the company take to this end, what are your current priorities?

I am absolutely convinced that with each year, shipowners’ ability to compete with each other will be increasingly determined not only by economic factors, but also by their readiness to adopt advanced technologies and upgrade the technical and engineering aspects of their fleet.

I believe that the shipping industry will be increasingly led by companies that prioritise environmental protection and navigational safety, that act to meet the future requirements and plan their fleet renewal in line with both existing and anticipated regulations imposed by certain countries, ports and international bodies such as the IMO. The ability to follow these external signals will be a critical success factor within the shipping industry.

As you know, one of the core elements of SCF strategy up to 2025 is the ‘Green Charter’. It lays down our commitment to continually reduce the carbon footprint of our fleet operations, whilst maintaining strong economic performance indicators and ensuring our fleet remains relevant to the evolving demands of our charterers.

We will increasingly adopt green technologies. We were amongst the pioneers in introducing LNG fuel for large-capacity vessels, something we will continue to do for the foreseeable future. All new vessels that SCF orders and plans to order will use LNG as their primary fuel. I am a big supporter of this technology, and we will improve it both from an engineering and operational point of view. We will do everything possible to promote the development of the LNG fuel market and infrastructure, and act as partners to companies that plan to bring this type of fuel to the market both in Russia and around the world.

If we look a little further into the future, what kind of fuel might be available tomorrow for widespread commercial use, apart from LNG?

SCF is guided by the IMO roadmap, which sets a target to reduce carbon emissions by 50 per by 2050, compared with 2008. We choose to use the same planning horizon and align both our technical and commercial policies with this IMO benchmark.

This is why we have chosen LNG fuel: it is the cleanest burning fuel already available for widespread commercial implementation today.

That said, it is possible that we will switch from using liquefied natural gas to using another, even cleaner burning, fuel in the future. The company is exploring new types of fuels and new technologies that could significantly reduce CO2 emissions, whilst using existing fuels.

Together with our charterers, over the past two or three years, we have been researching the possibility of using Flettner rotor sails. Again, we see them as an advanced device already available on the market, ready for immediate implementation and capable of producing fuel savings of five to seven per cent.

We also consider unmanned shipping to be a promising area. We are taking part in a pilot project to develop and test remote and automated vessel control systems. I think that by the end of the year, we will be able to share the first results of this experiment.

Thank you for the interview. We would like to invite you to attend our annual LNG Fleet, LNG Bunkering and Other Alternative Fuels conference scheduled for 28 October, which you have regularly attended and kindly supported in the past. We are looking forward to discussing LNG fuel as well as other alternative fuels and ‘green’ technologies at this event.

Thank you very much for your kind invitation. Historically, SCF Group has been a regular participant in these industry conferences that gather together parties interested in developing the bunkering infrastructure in Russian seaports. If the conference takes place, you can certainly count on our attendance.

Interviewer: Nadezhda Malysheva