The niche market of small and mid-scale LNG shipping is considered a growth market as it frequently provides a cost-efficient solution to the shipping requirements for the numerous regional LNG export and import projects under development worldwide.
As part of the LNG value chain, shipping companies are not only offering solutions, they are also providing tailor-made logistical approach to promote the use of LNG as fuel for ships. LNG as a shipping fuel is an excellent solution for ship owners to meet the various stringent emission regulations that come into force.
LNG is already witnessing an accelerated growth in major economies, as the shipping industry, which launched a crackdown on pollution is encouraging cleaner fossil fuels. Asian spot prices for LNG have doubled since June, to the highest level since late 2014 of over USD 11 per million British thermal units.
The LNG shipping market can be divided into two different market segments: project based shipping and spot goods shipping.
Project based shipping refers to the signing of long-term vessel chartering contracts with parties with demand for LNG project shipping (buyers or sellers of LNG trading) and providing services for LNG shipping vessels for such projects.
Spot goods vessels refer to LNG vessels which are not linked to fixed LNG projects but seek short-term or voyage-based shipping opportunities on the spot market. All of the LNG vessels currently invested by the Group are project-based shipping vessels with an average chartering term of around 20 years.
Such investments guarantee stable rentals and investment income and would not be affected by the market price of LNG spot goods shipping.
LNG Programmes in China
The late rally has been driven by a huge gasification program in China which this year alone moved millions of households and industry from coal to gas for heating, just as a cold winter bites. China’s gasification is aimed squarely at reducing coal use amid a determined effort to roll back pollution that has plagued cities for years. Australian coal prices were up 10 percent to over USD 100 a ton, as China ordered the closure of several domestic mines, forcing utilities to import more.
U.S. oil production has soared more than 16 percent since mid-2016 and is approaching 10 million barrels per day. Only OPEC king-pin Saudi Arabia and Russia produce more.
LNG Supply & Rates
Maritime trade LNG is a crucial link in the natural gas supply chain for many nations where domestic demand outstrips available supply. These vessels transport natural gas, which has been reduced to a liquid state by cooling it to minus 162°C, achieving a volume reduction of approximately 600 to one.
Available LNG vessel supply has quite possibly been the most influential factor in determining shipping rates recently. Over the past few years, spot rates have been on a wild ride plunging from 100k/day down to the 20k/day level as a massive influx of vessels outpaced demand. But demand for LNG vessels is picking up, and this has led to improving rates over the course of 2017 with spot charters now at 75k/day.
In the world’s most traded commodity, oil, Brent crude oil broke through USD 67 per barrel for the first time since mid-2015 in the last week of 2017, up 17 percent for the year but 50 % above mid-2017, amid record trading volumes. Upon delivery, LNG can be stored in a liquid state until the market demands, whereupon it enters a re-gasification process.
Oil has been lifted by efforts led by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia to withhold production in order to prop-up prices.
Future Ahead for LNG Vessels
At the end of 2016, there were a total of 478 LNG vessels in operation around the world. During first half of 2017, the fleet size expanded to over 500 LNG vessels, creating a certain level of pressure on the balance of demand and supply.
With the rapid growth of LNG as an energy source, the shipping majors are expected to analyse the macro outlook of LNG production and demand, shipping and regasification solutions and downstream markets. This would include the development of small-scale LNG and LNG bunkering.
Sea News Feature, January 1