Samsung Heavy Industries has confirmed that a Russian shipowning joint venture has formally cancelled its contracts relating to 10 LNG carriers and seven shuttle tankers worth some KRW 4.85 trillion ($3.53bn).

SHI, a South Korean shipbuilder, said in an exchange filing that it had received notice the contracts on 10 LNG carriers and seven North Sea shuttle tankers ordered by Zvezda in 2020 and 2021 have been cancelled.

“The shipowner unilaterally claimed contract default during negotiations and demanded termination notice and repayment of the advance payment of about 1.112trn won ($800m) plus delayed interest,” SHI said.

SHI said it is unable to transact with Zvezda, which has been declared a Specially Designated National.

The yard branded the termination notice as “illegal”.

SHI said it plans to file a lawsuit in the Singapore Arbitration Court to dispute the termination and the scope of the repayment while also continuing negotiations.

The move to cancel the contracts comes as the US Treasury Department moved this week to add seven Arc7 ice-class LNG carrier newbuildings to its sanctions list against Russia in a bid to block the advance of the country’s LNG export capabilities.

The seven sanctioned vessels are the 172,600-cbm Sergei Witte, Alexei Kosygin and Pyotr Stolypin, along with Zvezda Hull Nos 44, 45, 46 and 47.

SHI signed up with Zvezda in 2020 in a deal for 15 of the specialised ice-breaking LNG carriers — the first owned by Russia’s Sovcomflot and the remaining 14 by Sovcomflot-Novatek joint venture Smart LNG. The vessels were part of 21 Arc7s being built to serve Novatek’s now-delayed Arctic LNG 2 project.

Under this $5.7bn agreement the South Korean yard would build the hulls and then float them over to Zvezda for fitting out.

To date, five hulls were sent over to Russia with two remaining at SHI. It is these seven vessels that have been sanctioned.

In September 2023, SHI said the agreement with Zvezda was “frozen” but negotiations were continuing.

Novatek has also had three more of its 21 Arc7 newbuildings sanctioned. These three vessels are on order at Hanwha Ocean for the South Korean yard’s own account after the shipbuilder cancelled its contracts with their owner, Sovcomflot.

In October 2021, SHI also won a contract to supply hull blocks and equipment for seven ice-breaking shuttle tankers, worth about $3.53bn.