Is this the future of LNG shipping?

Is this the future of LNG shipping?

Interbasin trading, low rates, further fleet growth: Gas shipping industry forecasts developments set to reshape industry

THE LNG industry recently asked itself a potent question: “What are we missing?”

Analysing the future of the LNG industry to ensure profitable business, owners, charterers and other industry players presented some interesting predictions and findings, at the Informa LNG Global Congress.

Interbasin trading is set to grow in popularity, reducing tonne miles, but potentially offering opportunities for smaller vessels. Interbasin refers to cargoes being moved within a region such as the Atlantic basin, rather than carried between the Atlantic and Pacific basins.

This interbasin trading could involve US cargoes heading to South America. Or Southeast Asian cargoes carried to importers in that region, or Middle Eastern cargoes shipped short-haul to satisfy rising Middle Eastern demand for LNG.

Opportunities lie in these “pockets of demand”, said Shell business economics manager Claire Wright.

“There will be niche trades available for some of the smaller vessels coming up for charter,” she said.

Rates and fleet

Charter rates are likely to stay low for the next three or four years, according to CS LNG consultant Juris Popils, and owners face tough decisions over what to do with their outdated steam turbine vessels.

More LNG carriers are set to be ordered, particularly by India and Japan, but speculative orders are dying down as owners opt to take fewer risks in the low spot and short-term freight market.

Despite continued fleet growth, demand in Asia is on a downturn, raising questions over the optimal size of the global fleet.

The key to fleet size is how many vessels will be required to haul cargoes out the US in the coming years, estimates ranging from 50-250 or more depending on where cargoes are shipped.

“We’re sitting in a very different world now, with new players and new business models,” said South-Court managing director David Ledesma.

Worldscale?

Looking a decade into the future, there is the possibility of the LNG shipping industry developing its own Worldscale system or an index equivalent to the tanker freight index published by the Baltic Exchange.

Such a development would allow owners to more easily benefit from round trip freight economics, according to Simpson Spence and Young senior shipping adviser Debbie Turner.

GasLog’s chief operating officer Graham Westgarth sees that developing, but a decade away, when more liquidity will exist in the industry.

“The market will become more liquid, and a more liquid market is good for ships,” he said.

Shortage of skills

A risk is the skills challenge as the LNG industry grows.

“There is a skills shortage and training doesn’t come cheap,” said SIGTTO general manager Andrew Clifton.

Shipowners need to put plans together to ensure they have sufficient crews for the global fleet, which has expanded from 100 vessels in 1997 to more than 400, an influx of new vessels poised to expand the fleet even further.

“It’s a huge challenge to our safety record,” said Mr Clifton.

Efficiency challenges

While cargo boil-off during transit has been reduced to 0.085% from 0.15% 10 years ago, more can be done.

“There are technical challenges still out there that have not been solved,” said Mr Westgarth. “If boil-off can be reduced to zero, then that might be the next step.”

For vessel manager Shell, improving operational efficiency of vessels is crucial, not just technical improvements.

Shell’s focus is on loading and discharge turnaround times, optimal routing, port infrastructure improvements and fuel management.

“There’s lots of scope for optimisation,” said Ms Wright.

FIDs to go ahead

LNG projects reaching final investment decisions will go ahead, despite the fall in commodity prices, experts told Lloyd’s List.

As one veteran player put it at the Informa LNG Global Congress, for an FID you need a commitment that someone will take cargo volumes, not necessarily tomorrow but perhaps as far out as 2025. And an importer such as China will simply build import terminals and then decide how much LNG they will take.

Nervous introspection

The LNG industry’s propensity for slightly nervous introspection perhaps originates from the US experience. The US was gearing up to become the new demand centre at the turn of this century, import terminals built to support the planned US appetite for LNG.

It was all turned on its head when the US discovered how to extract shale gas at scale; the plan reversed to turn the US into an exporter, reshaping the global trade dynamic, with first US cargo to be shipped out of Cheniere’s Sabine Pass export terminal in the US Gulf this December.

No-one saw this coming 15 years ago; hence the inclination to speculate over what else is out there to reshape the industry and affect trading patterns and earning power of the global fleet of LNG carriers.

“We’re in unknown territory,” Mr Westgarth told Lloyd’s List.

http://www.lloydslist.com/ll/sector/tankers/article469617.ece

 

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