LNG Shipping Faces Coronavirus Negative Impact

LNG shipping hasn’t been able to avoid the negative impact from the drop in gas demand, as a result of the Coronavirus outbreak. In a recent market commentary, LNG ship owner, AWILCO LNG said that “the story of LNG in 2019 has been one of massive supply growth and muted demand, leading to global gas prices falling to their lowest in 10 years. At the same time final investment decisions on new LNG liquefaction capacity in 2019 hit an all-time high of 71 MTPA, underpinning gas as an important and increasing part of the global energy mix. Total LNG trade in 2019 ended at 361 MT according to Fearnleys LNG, a growth of 11 % on 2018 volumes and a doubling in 10 years. Muted demand from key LNG importers Japan and South Korea, both down 8 % on 2018 imports due to mild weather and higher nuclear power generation, were partially offset by larger imports to China and India which grew by 16 and 5 % respectively”.

According to the ship owner, “Europe has been the main buyer of incremental LNG volumes in 2019, growing imports by 61 % y-o-y to about 91 MT and taking advantage of low gas prices to switch its energy mix from coal to gas. Driven by volume growth, but partly offset by larger imports to Europe reducing average sailing distances, total shipping demand as expressed by growth in ton-mile increased by about 8.5 % in 2019 compared to a fleet growth of 7.3 % according to Fearnleys LNG. According to same headline spot TFDE day rates started the quarter at USD 88,000 and USD 83,000 per day West and East of Suez respectively, and ended Q4 at USD 95,000 and USD 87,000 respectively. In line with normal seasonal effects from the winter market spot rates peaked at USD 130,000 in both basins in mid-October 2019. A total of 71 MTPA of new capacity was sanctioned in 2019, representing about 20 % of total LNG traded in 2019. In total 121 MTPA of new LNG production capacity is under construction and expected to commence production in 2020 to 2026. According to market analysts a further approx. 800 MTPA of new LNG production is in various stages of planning”.

In terms of tonnage supply, AWILCO LNG added that “38 newbuildings were delivered and 43 vessels were ordered at four different yards in 2019. According to shipbrokers the current orderbook year end 2019 for LNG vessels above 150,000 cbm (excl. FSRU and FLNG) was 110 vessels, of which about 38 are assumed available for contract. 43 vessels are scheduled for delivery in 2020, 43 in 2021, 22 in 2022 and 2 in 2023”.

In terms of the market’s outlook, the shipowner noted that “LNG production has grown strongly in 2019 with demand unable to keep up so far. As a result, global gas prices have been under pressure and in addition to being at all-time lows have also converged between the main basins reducing ton-mile demand. Although increasing LNG volumes are expected to continue to drive tonnage demand, it may be challenging for shipowners to secure utilisation and capture higher charter rates in the near term due to the current muted end-user demand as exacerbated by the outbreak of Covid-19”.

AWILCO LNG added that “gas demand from industry and power utilities in China, the world’s second largest LNG importer in 2019, has reportedly been reduced by 10-14 % so far in 2020. Natural gas is on average currently priced at around 25 % of oil on an energy equivalent basis. In the longer perspective low prices and the growing supply of molecules is expected to support growth in demand for natural gas as a flexible and clean fuel compared to other fossil alternatives. More than 110 MTPA of new LNG production capacity under construction is expected to start up the next five years. Tonnage demand and supply appear balanced going forward, noting that about 50 % of the new production capacity is being built in the US, which depending on transport distances will underpin demand for LNG carriers beyond current fleet and orderbook. Over the same time period about 75 smaller and less economical steam LNG carriers are expected to roll of long-term contracts, whereby modern vessels have an economic advantage as replacement tonnage. However, periods of volatility and seasonality should be expected”, the ship owner concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide