Source - BIMCO (the Baltic and International Maritime Council)
The global trade in LNG, the maritime growth industry of the moment, is going through a surprisingly quiet patch. Worldwide shipments actually fell in 2012, by 2.5 million tonnes (mt) to 238.3 mt. This was only the fourth time in the 50-year history of LNG transport that the annual trade level dropped. In contrast, the LNG movements in 2011 were 19 mt higher than the 2010 figure.
Furthermore, 2013 promises to be another slow year in terms of trade expansion. The current hiatus in shipping volumes can be traced back to the global financial crisis that broke in September 2008. Planned new LNG projects were put on hold in 2009 in the face of the credit crunch and faltering economic performance.
The upshot is that very little new LNG production capacity is currently coming on stream. Over the 2012-13 period, so far only the new 4.3 million tonnes per annum (mta) Pluto plant in Australia and the 5.2 mta Angola project have commenced production.
Although a new 4.5 mta liquefaction train at Skikda in Algeria is due to be completed this year, output is not likely to reach commercial quantities until 2014. Early output from Pluto and Angola LNG has been offset by recent production problems at a number of existing LNG trains worldwide.
As important as current trade levels are, however, they represent only one string in what is a very vibrant LNG bow. Developments that will underpin an average annual LNG trade growth in double digits for the remainder of this decade have been taking place across the LNG spectrum.
For a start, final investment decisions (FIDs) in the past two years mean that seven new export projects costing more than USD 175 billion in total will be commissioned in Australia in the 2015-17 period. These liquefaction facilities will add over 65 mta of LNG production capacity to the global total. Augmenting these projects will be output from Papua New Guinea, Indonesia, and the first of what is likely to be a slew of US shale gas-based LNG export schemes.
For their part ship owners have been gearing up to transport the new volumes entering the market. A total of 35 new LNG ships were ordered in 2012, the fourth highest annual total ever and surpassed only by the newbuilding contracts logged in 2004, 2005 and 2011.
There are now 98 LNG carriers on order and 377 such vessels in service worldwide. The orderbook features eight floating storage and regasification units (FSRUs), including one ordered in the early days of 2013. A total of 57 LNG carriers are due for delivery in 2013 and 2014.
The majority of ships in the current orderbook were ordered on a speculative basis, on the promise of the 2015-17 surge in liquefaction plant construction, and their associated long-term LNG sale and purchase agreements (SPAs). Now that the FIDs for these projects have gone ahead as planned, most of the ships on order have now secured charters.
Going forward, there is likely to be a return to the days when long-term SPAs between gas buyers and sellers predominated, short-term and spot cargo business was a more marginal activity and the shipping requirements for a particular project were tied up early.
Although spot and short-term cargoes have accounted for in excess of 20% the total world trade in LNG in recent years, this activity was driven primarily by the Japanese need for emergency imports following the 2011 earthquake and subsequent closure of the country’s nuclear plants. The rising Japanese demand for gas coincided with a fall in the demand for LNG in Europe and the US.
Today, gas buyers are keen to secure their future energy needs through long-term contracts. For example, by 2014 Qatar’s SPA export commitments will increase to 84% of the country’s total 77 mta production capacity, up from 73% in 2012.
In recent years the diversion to Japan of LNG cargoes produced in the Atlantic Basin for regional customers has served to keep the LNG carrier fleet busy and ensured healthy freight rates for ship owners. An estimated 22.4 mt of Atlantic Basin LNG that traditionally would have gone to US and European customers was diverted to meet surging demand in Japan and elsewhere in Asia in 2012.
Tight ship supply helped keep the average charter rate for LNG carriers sailing on long voyages eastbound up at the USD 126,000 per day level in 2012. The delivery of a substantial number of new ships over the next two years, in advance of the start-up of new LNG production capacity, will ease the upward pressure on charter rates. The average for 2013 is forecast to sink below the USD 115,000 per day mark and down to USD 90,000 in 2014. Charter rates will then strengthen again in 2015 as the imminent new wave of LNG projects starts up.
Looking further ahead, Mozambique, Canada, Russia, Indonesia and Israel have ambitions to add to the LNG supply portfolio before 2020. As mentioned, the first US shale gas project has been sanctioned but a further 20 possible US LNG export projects have been tabled for development. Although only a handful of these will materialise, the US is expected to add at least 50 mta of LNG export capacity to the global pot by the end of the decade.
Several of the next, post-2017 tranche of LNG production projects are already poised to proceed. Engineering studies have been concluded, permitting processes are nearing completion and the time for their FIDs is approaching.
Ship owners are monitoring these further developments closely and are poised to secure building berth slots in order to be part of the LNG industry’s next great leap forward. Industry watchers are predicting that the 2013 tally of LNG carrier orders could reach 40 ships and, possibly, an even greater number in 2014.
Part of the upcoming order book will be earmarked as replacement tonnage. There are currently 38 LNG carriers in service that are over 30 years old and some of the true veterans in this segment will be nearing the end of their service lives over the next few years, at least as conventional LNG carriers. Five of the ships currently carrying Nigerian LNG exports, for example, are over 30 years old and earmarked for replacement over the next few years.
It is interesting to note that amongst the additions to the LNG carrier orderbook announced in December 2012 was a contract for a unique pair of ships. To be built in Korea for completion in the first half of 2016, the duo will be the first LNG carriers to be powered by low-speed gas-injection engines.
The use of low-speed dual-fuel engines promises significant improvements in fuel efficiency and reduced emission levels. The breakthrough could herald a widespread uptake of this propulsion system option for LNG carriers in the years ahead. For a start, the order for the first pair of such vessels includes options on three further sister ships.
