Feature: Record pace for LNG carrier orders

Date: 07.12.11

By Mike Corkhill

While most other sectors of shipping are currently struggling, the LNG carrier segment has enjoyed one of its best ever years. A good reflection of this buoyancy is the number of LNG ships that have been ordered in 2011. In the year to date owners have signed up for 64 new LNG ships. This performance was topped only once before, in 2004 when 67 LNG carriers were contracted.

This year’s requirement for new LNG tonnage incorporates a new and distinctive offshore element. The newbuilding total for 2011 includes two LNG floating production storage and offloading (FPSO) vessels, the first such floating liquefaction plants ever contracted, and five floating storage and regasification units (FSRUs). These FSRUs are also the first purpose-built vessels of this type to be ordered although they are essentially the same type of LNG ship as the 10 LNG regasification vessels (LNGRVs) constructed to date.

There could well be a few further contracts placed in the remaining weeks of the year. Several ship owners ordering LNG carriers earlier in 2011 also hold options on further shipyard berth slots and the decision dates for a number of the options are imminent.

The vast majority of the newbuildings ordered in 2011 are conventional size LNG carriers of 155-175,000 m3 powered by dual-fuel diesel electric propulsion systems and sporting a membrane tank containment system. This is the design of LNG carrier now favoured although development work is continuing on propulsion system options and greater use of gas-fired, slow-speed diesels holds promise for the future.

South Korean shipbuilders account for 57 of the vessels contracted this year while Chinese yards will build four and Japanese yards three. Most of the LNGC newbuildings contracted at the Korean yards are priced at USD 200 million while the FSRUs will set the owners back by approximately USD 250 million.

The 2011 LNG carrier orderbook is also characterised by the strong presence of independent owners. Greek ship owners have taken the biggest plunge, signing up for 29 of the newbuildings. Owners domiciled in Northern Europe and Scandinavia committed for 23 of the new vessels while Japanese owners will take seven ships and those from the US five.

The overwhelming majority of LNG ship orders in 2011 have been placed on a speculative basis. However, such is the expected demand for LNG ships through 2015 that all the owners believe that their investments will reap handsome rewards from the outset. This year’s contracting surge follows a two-year hiatus in new LNG carrier orders and coincides with rebounding interest in LNG, not least as a result of environmental pressures, the Japanese earthquake and tsunami in March 2011 and the high price of oil.

A measure of the current demand for tonnage is given by the rapid rise in LNG carrier freight rates over the past year. In recent months charterers have fixed several modern ships for periods of 2-4 years at rates in the USD 120-140,000 per day region, a three-fold increase on the general LNGC rates pertaining 12 months earlier and the highest since 2006. The rates now being quoted are judged to be about double the breakeven level for these recently built ships.

Older LNG carriers are also benefiting from the surging market. Fixtures of superannuated tonnage at day rates of up to USD 75,000 are currently being reported, or three times the breakeven level for such vessels. The charters for the older ships tend to be of shorter duration, from several months up to a year typically.

The fact that almost 90% of the current 365-vessel fleet is fixed on long-term charter means that relatively few LNG carriers are available to meet the industry’s spot cargo and short to medium term needs. This in turn will ensure that LNGC owners with uncommitted ships will continue to accrue healthy returns for at least the next two years.

Both LNG availability and gas carrier supply will remain tight as comparatively few new ships and only limited LNG liquefaction capacity are due for commissioning before the second half of 2013. At the same time, the strong demand for LNG imports, particularly in Asia, is drawing LNG cargoes from the Atlantic Basin on long, lucrative voyages eastwards and spurring final investment decisions on the next round of LNG export projects.

Far Eastern shipbuilders, anxious to rejuvenate their LNG carrier orderbooks and maintain continuity in their production lines, have been keen to accommodate ship owner requests for early delivery dates for the new vessels contracted this year wherever possible. A glance at the orderbook shows that 16 of the newly ordered LNGCs are scheduled for delivery in 2013, 28 in 2014 and 18 in 2015.

The greatest part of the new fleet of LNG ships ordered this year will go into service carrying Australian exports. Currently the world’s the fourth largest LNG exporter, with overseas shipments of about 20 million tonnes per annum (mta), Australia has over USD 200 billion worth of new LNG production projects in the pipeline. These include six new liquefaction plants that are under construction or approved and due to come on stream in the 2014-2015 period. The country is likely to be rivalling Qatar, which has an LNG production capacity of 77 mta, as the world’s leading LNG exporter by 2020.

Over the next year several new LNG exporters, based in the US Gulf and on Canada’s West Coast, are likely to decide on the construction of liquefaction facilities as part of the drive to meet the rising Asian demand for gas. Many of the ships in the recently expanded LNGC orderbook are set to become transpacific carriers when the first of these new North American export terminals are commissioned in 2015-16.

The 2014 opening of the new set of Panama Canal locks now being built to allow the passage of larger vessels will enhance business opportunities for the new breed of US Gulf LNG exporters. If aggregated, the US Gulf export capabilities being mooted could total 50 mta. US and Canadian exporters offer the advantages of secure supplies and low-cost gas due to the vast volumes of recently discovered shale gas now available.

There has been some conjecture as to whether LNGC owners have over-ordered with their enthusiastic 2011 bookings of berth slots. The availability of large new quantities of Australian LNG in relatively close proximity to Asian demand centres will certainly reduce the fleet tonne-mile requirement. Even transpacific voyage lengths will be significantly lower than the miles logged by ships currently carrying Atlantic Basin LNG to Asia.

However the more bullish LNG market watchers are more upbeat in appraisals of how many new ships will be required. The global trade in LNG in 2020 is expected to be topping 375 mta, up from 221 mta in 2010. At this level at least an additional 75 LNGC newbuildings will have to be ordered by 2017, on top of those ships ordered this year.

Editor's Note: Mike Corkhill is a technical journalist and consultant specialising in oil, gas and chemical transport, including tanker shipping and chemical logistics. A qualified Naval Architect, he has written books on LNG, LPG, chemical and product tankers and is currently the Editor of both LNG World Shipping and LPG World Shipping.

Feature articles written by outside contributors do not necessarily reflect the views or policy of BIMCO.

Source: BIMCO