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LNG Shipping; More than 500 LNG Vessels Chasing a Growing Number of Cargoes, in Improving Outlook

The LNG shipping market is gradually returning to form, at least according to major market players. In a recent note on the market’s outlook, Cosco Shipping said that at the end of 2016, there were a total of 478 LNG vessels in operation around the world. “During the first half of 2017, the fleet size has expanded to over 500 LNG vessels, creating certain level of pressure on the balance of demand and supply”.

According to the shipowner, “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 the 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”, Cosco Shipping said.

Meanwhile, in a separate note, Golar LNG noted that the shipping market during the second quarter showed no material improvement. “The quarter commenced with intense competition for fixtures in both basins which continued to be reflected in poor rates and minimal compensation for positioning and ballast legs. A tightening market was, however, highlighted toward the end of the quarter as reduced redeliveries in both the Atlantic and Middle East culminated in an isolated six figure voyage rate being secured”.

The shipowner added that “looking ahead, the 15.6mtpa Gorgon project is now producing at nameplate capacity. Cheniere’s 4.5mtpa Train 3 continues to ramp up whilst T4 has recently commenced the commissioning of a further 4.5mtpa. Start-up of Wheatstone’s 4.5mtpa T1 is imminent with commissioning now underway. A further 4.5mtpa should follow in 7-9 months with T2. Novatek has started commissioning the first of its three 5.5mtpa Yamal liquefaction trains and the 5mtpa Cove Point plant is on track to commence service in 4Q. Ichthys LNG is due to initiate production from the first of its two 4.5mtpa liquefaction trains in 1Q 2018 and Shell’s 3.5mtpa Prelude FLNG facility recently arrived offshore Australia. In addition to the above, US exports are expected to ramp up sharply over the course of 2018 and 2019 with further capacity growth of close to 45mtpa”.

Golar LNG said that “subsequent to 2Q, and as anticipated, chartering activity has improved as some of the above-mentioned projects commence and ramp up production. Owner expectations are firming in response and this is contributing to a gradual recovery in shipping rates, the re-emergence of round trip economics and a widening bid-ask spread for 2018 fixtures. Whilst approximately 55 vessels are expected to deliver in 2017, the tonnage required to meet incremental production is greater. The disconnect between vessel deliveries and increasing LNG production is expected to positively widen in 2018”.

The shipowner added that “to date, the Cool Pool has succeeded in securing many more voyages compared to the same period in 2016. As a more balanced market approaches and the number of prompt available vessels declines its market share will increase, further strengthening rate expectations. The predicted 3Q upturn in the shipping business is now underway and appears to be on a more sustainable footing. July 2017 represented the most active month for spot voyages on record. Although partly driven by seasonal factors, the recovery is being supported by a step-up in new liquefaction, an increase in the number of 1, 3 and 5+ year tenders and a widening bid-ask spread for 2018 charters”, Golar LNG said.

The shipowner concluded that “the demand case for LNG continues to defy earlier expectations. Chinese 1H imports are up 38% on 2016. South Korea, the world’s second largest LNG market, is positioning itself to take additional LNG as it moves away from coal and nuclear. India and frontier markets such as Pakistan are also proposing aggressive increases in LNG imports. With identified access to the US export market in addition to its West African presence, Golar is now firmly positioned to meet this rising demand for liquefaction with the lowest cost solution in both markets”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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