Owner Tsakos sees 50-50 chance of bubble in LNG shipping market
Monday, 11 June 2012 | 00:00
There's a 50 percent possibility that a bubble is developing in liquefied natural gas shipping as owners accelerate vessel ordering, according to Nikolas Tsakos, president of Greece's biggest public tanker company.
Tsakos Energy Navigation Ltd. will sign a contract to build two LNG carriers on June 4, expanding its fleet to five, Tsakos, who's also chief executive officer, said in a May 28 interview at his office in Athens. Greek owners' share of the global order book for the ships is 45 percent, according to data from Clarkson Plc, the world's largest shipbroker.
Japan's March 11 earthquake and tsunami last year led to the shutdown of nuclear power, driving up demand for LNG as an alternative fuel and spurring owners to accelerate ordering after freight rates rose to a record. The industry is echoing a boom that took place in oil markets about half a century ago, according to analysts including Andreas Vergottis, research director at to Tufton Oceanic Ltd., manager of the world's largest shipping hedge fund.
"There's a 50-50 chance" fleet growth will expand faster than demand, Tsakos said. "One scenario tells you that natural gas transportation is where the tankers used to be in the 1950s and 1960s, when it was a very small niche market with long-term contracts run by Greeks. If we are following a similar pattern for LNG, we don't have to worry, there's a lot of space for people to grow."
Forty three LNG carriers were ordered after the tsunami last year and a further 17 in 2012, data from Clarkson show. Excluding the Tsakos orders, 73 LNG carriers are booked to be built at global shipyards, including 33 by Greek-controlled companies, according to Clarkson. The global trading fleet numbers 372.
A shortage of LNG vessels lifted hire costs for single voyages and 12-month charters to a record this year, aided by slumping demand for imported LNG in the U.S. and Europe and the acceleration in Japan, the biggest importer. That spurred a redirection of shipments over longer distances, tying up the carriers for longer and lifting utilisation.
The negative scenario for owners, according to Tsakos, is that demand for the vessels expands more slowly than anticipated, creating a surplus as the new carriers join the fleet, he said.
The increased demand seen in 2011 and 2012 could imply "a local bubble created by the Fukushima nuclear accident," he said.