Both demand and supply of liquefied natural gas (LNG) are expected to grow in the foreseeable future as many emerging markets turn to cleaner-burning fuel in their energy mix and as new export projects—from the U.S. to Canada to Africa—are being planned and sanctioned to meet growing demand.
As LNG demand and supply grow, so do LNG trade and demand for LNG carriers. Although the shipping market, including LNG shipping, is going through booms and busts, the LNG vessel market is set for a multi-year bull run that started late last year, ShipBrief analyst James Catlin wrote in Value Investor’s Edge.
The LNG shipping market is set for a tight 2019 and an even tighter 2020 as the expected growth in fleet will not be enough to meet growing LNG trade demand, pointing to higher charter rates for LNG carrier owners and operators, Catlin argues.
According to GIIGNL, the International Group of Liquefied Natural Gas Importers, as of end-2018 the total LNG tanker fleet vessel consisted of 563 vessels. Last year, the average spot charter rate was US$88,692 per day for a 160,000-cubic-meter LNG carrier, nearly double the average charter rate of US$46,058/day in 2017.
As many as 57 vessels were delivered last year, while the LNG carrier order book consisted of 138 units at end-2018, which equaled to 25 percent of the operational LNG fleet. Of the ordered vessels, 46 were scheduled to be delivered in 2019.
In the coming years, demand for LNG will continue to grow and so will supply. This will need more LNG carriers to ship the super-chilled fuel from the supply locations to the biggest demand centers.
China’s LNG demand is “almost infinite” with the coal-to-natural gas switch, Yao Li, chief executive at Chinese consulting firm SIA Energy, said last month. India is also set to boost its LNG imports, while new LNG buyers such as Bangladesh, Panama, and Gibraltar have emerged as import markets recently.
On the LNG supply side, this year could be the biggest year yet in terms of LNG volumes of projects given the go-ahead, analysts say.
According to the GIIGNL importers’ group, new capacity out of Australia, U.S. capacity (Corpus Christi LNG Train 1, Cove Point LNG, and Sabine Pass Train 5) and new Russian capacity with Yamal LNG Train 2 & 3 added to the global LNG capacity last year. At the end of 2018, about 66 MTPA of new liquefaction capacity was under construction, 53 MTPA of which was located in North America. This year, some 25 MTPA of new liquefaction capacity is expected to come online, and most of it—21 MTPA—is located in the United States. Shipbuilder Samsung Heavy Industries, which builds LNG carriers among other ships, said in an investor presentation this month that it sees the strong demand for LNG carriers continuing in the next few years. In the long-term view, Samsung Heavy Industries sees demand for LNG carriers at more than 50 vessels per year, with 30-35 vessels due to demand from global LNG trade growth, 15-17 ships due to demand for ton miles increase, and 4-5 vessels to replace ageing fleet.
Considering global LNG export plans, short-term demand of new LNG carriers is expected to be strong, and up to 252 additional vessels would be required by 2024, the company said. Samsung Heavy Industries expects some 90 ships to be ordered now to meet demand from expansion plans in Qatar, an expected 2024 start-up of a Mozambique LNG export facility, the start up of Golden Pass LNG of ExxonMobil in 2024, as well as demand for ice-breaking LNG ships for Russia’s Arctic LNG projects of Novatek.
More LNG ships will be needed in the short term to meet rising supply out of the United States, ship owners and operators told The Wall Street Journal earlier this year. While the crude oil market is highly volatile these days, LNG trade could now be the most profitable trade in shipping since the 1960s, executives and analysts told The Journal’s Costas Paris.