01-05-2018

Growing LNG supply and US-Asia trades soak up shipping glut

New liquefied natural gas projects and longer trade routes from the US to Asia are soaking up the surplus LNG shipping capacity that had built up in recent years, executives at an LNG forum in Singapore said this week.

Consequently, the LNG shipping market is tightening rapidly, which could lead to a shortage of ships in the next two-three years, especially on the spot market where market participants do not have the protection of long-term charters.

Tighter shipping supply is likely to increase LNG freight rates and make it more difficult for US LNG cargoes to reach distant markets in Asia as arbitrage economics get tougher.

“There will be a shortage of ships. And you cannot add new orders in the next couple of years,” BW LNG’s managing director Yngvil Eriksson Asheim, said at the Sea Asia LNG Forum in Singapore. It takes roughly two years to build an LNG carrier.

She said 60 LNG carriers are expected to be delivered in 2018, and 38 in 2019 and 2020 in total.

With over 90 million tons of new LNG supply coming online in the next couple of years, that’s a vessel demand of roughly 126 LNG carriers at an estimate of 1.4 ships for every 1 million mt/year of LNG produced, Asheim said.

The scale of LNG market growth in the next three years, and the pace at which it is mopping up shipping supply, is phenomenal, considering that 2018 will see the highest number of LNG carriers delivered in a single year.

Deliveries during 2018 are expected to hit a new record, as high as seven million cu m, after taking into account a 30% slippage rate in the delivery of ships, according to Ralph Leszczynski, head of research at Italian brokerage Bancosta.

“The pace of deliveries in 2018 and 2019, which now hold together 97% of the order book, will shape the industry for many years to come,” Leszczynski said.

US GAMECHANGER

Despite rapid fleet growth, longer voyages from the US Gulf Coast to Asia have been a major driver of LNG tonne mile demand — a measure of shipping demand that includes cargo volume and distance travelled.

Typically, around 1.3 LNG ships are required to transport every 1 million mt of LNG supply, but for all cargoes loaded from Sabine Pass, the longer routes to Asia required 1.76 ships for every 1 million mt of LNG, according to Rolv Stokkmo, LNG Shipping & Product Broker at Poten & Partners.

“The markets of 2019 and 2020 will be short shipping,” Stokkmo said.

He said last year spot freight rates had risen gradually and at one point touched a high of $100,000/day, but then the PNG LNG project was hit by an earthquake in February and freight rates crashed.

As PNG has started up again, and the market goes into the June-July period with new LNG supply trains coming online, freight rates will pick up again to last year’s levels of over $100,000/day, Stokkmo said.

Additionally, LNG shipping itself is undergoing a technological upgrade, including new propulsion systems like MEGI–a type of electronically controlled gas injection–that ensure LNG fuel consumption on LNG ships will be half of what it was 10 years ago.

The more the fuel efficiency, the more will be the cargo left for sale, as LNG volumes in a contract are measured at delivery.

Source: Platts

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