Hanwha Ocean Faces Second Arbitration Claim Over Canceled Russian LNG Carrier Orders
South Korean shipbuilding giant Hanwha Ocean finds itself in the midst of an international arbitration dispute following the cancellation of orders for ice-class liquefied natural gas (LNG) carriers meant for Russia’s Arctic LNG 2 project. The dispute involves substantial claims filed by the shipowners and separate claims for damages from LLC Arctic LNG 2, the charterer of the vessels.
Arbitration Dispute Details
Hanwha Ocean recently revealed through the Korea Exchange that it had received an arbitration request filed by LLC Arctic LNG 2 with the Singapore International Arbitration Centre (SIAC). LLC Arctic LNG 2, the project owner of Russia’s Arctic LNG 2, is seeking damages amounting to approximately 1.37 trillion KRW (about US$1 billion) from Hanwha Ocean for alleged breaches of “Step-In Agreements” related to a terminated shipbuilding contract.
The dispute revolves around three ice-breaking LNG carriers that Hanwha Ocean was contracted to build for Russian shipowners Elixon, Azoria, and Glorina. The total contract value was around US$850 million, with all vessels initially set for completion and delivery by July 31, 2023. However, issues arose following the Russia-Ukraine conflict and subsequent Western sanctions on Russia, leading to the termination of the shipbuilding contracts in 2022.
Ongoing Arbitration Proceedings
Three Russian shipowners initiated arbitration proceedings against Hanwha Ocean in May 2023, demanding contract fulfillment and damages of up to 1.159 trillion KRW (approximately US$862 million). Meanwhile, the original arbitration between Hanwha Ocean and the shipowners is still ongoing, with both parties exchanging submissions and evidence since 2026.
In a surprising turn, LLC Arctic LNG 2, the project operator and charterer of the LNG carriers, has also filed a separate arbitration claim against Hanwha Ocean. This new claim is based on an alleged breach of an intervention agreement, with LLC Arctic LNG 2 seeking approximately US$1 billion in damages from Hanwha Ocean.
Hanwha Ocean’s Response
In response to the arbitration cases, Hanwha Ocean has stated its intent to establish an arbitral tribunal and present a defense in compliance with SIAC rules. The company aims to pursue a legal defense while also seeking a possible settlement. Despite the preliminary estimate of damages, the final amount remains uncertain as the arbitration process unfolds.
Industry experts note that the legal uncertainties surrounding Hanwha Ocean’s Russia-related operations are unlikely to be resolved in the near future, given the ongoing disputes and complex contractual relationships involved. The company faces significant financial risks as it navigates the arbitration proceedings with multiple parties in this high-stakes dispute.
