LNG shipping outlook remains positive says prominent shipowner
The demand outlook for LNG carriers with long-term charters remains positive said ship owner GasLog over the week. According to the ship owner, “we continue to see a number of tenders for multi-year charters for vessels, which we expect will be used to transport volumes from new liquefaction facilities due to commence production over the coming years. We believe that these new LNG volumes will create demand for additional ships over and above those available in the market today”.
However, as was pointed out this past week by global shipping consultancy Drewry, “ if Asian buyers continue to divert their contracted supply from the US towards Europe and Latin America, it will reduce demand for LNG vessels in the long term by cutting down on long-haul trade”. Drewry has been maintaining a bullish long-term outlook for LNG shipping for quite some time and expects rates to improve substantially from 2018 onwards. One of the major reasons for this outlook is the expansion in US LNG supply. Since most new LNG export capacity in the US will start to come online from 2018 onwards and almost 85-90% of this supply has been tied to contracts, the trade will create demand for a large number of vessels. However, the LNG market has changed considerably from the time when these contracts were signed and so Asian buyers are looking to offload their contractual supply. If we continue to see more Asian LNG buyers looking to divert their US cargoes either to Europe or Latin America, this could substantially reduce the demand for LNG ships, taking into account the shorter hauls from the US to Europe or to Latin America. “Although the capacity diverted so far by Asian buyers is not significant enough to negatively impact LNG shipping, if this trend continues and more Asian buyers follow suit, it will reduce demand for LNG vessels”, said Shresth Sharma, Drewry’s lead LNG shipping analyst.
GasLog noted that “in the third quarter, there were several announcements highlighting LNG supply and demand growth as well as increased demand for LNG carriers. Cheniere announced the substantial completion of Sabine Pass Train 2 with a production capacity of 4.5 million tonnes per annum (“mtpa”) and commissioning cargoes from this facility are now being transported. Angola LNG’s 5.2 mtpa facility and the Chevron-operated 15.6 mtpa Gorgon project restarted production. The Canadian government gave conditional approval for Pacific NorthWest LNG’s 12.0 mtpa project. BP announced Final Investment Decision (“FID”) for the Tangguh Expansion Project, which will add 3.8 mtpa of capacity to the existing facility, bringing total capacity to 11.4 mtpa. However, during the quarter, Shell delayed FID for the 15.0 mtpa Lake Charles LNG project and Exxon Mobil announced it will no longer invest in the proposed 20.0 mtpa Alaska LNG project”.
Meanwhile, “on the demand side, Pakistan announced the purchase of its second floating storage re-gasification unit (“FSRU”). The country is expected to continue to increase its LNG imports to counter declining indigenous production. Bangladesh announced agreements for the construction and operation of the country’s first LNG import terminal, which will be a floating facility. Both projects continue a trend of new importing nations selecting FSRUs, which are typically quicker to market and more flexible than land-based terminals. We expect FSRUs to be an important link to the supply and to facilitate the creation of additional demand in both new and existing markets. Year to date LNG import volumes in China and India are up 27% and 34%, respectively, with both countries looking to respond to reduced LNG prices. In the third quarter, LNG prices in Northeast Asia and Northwest Europe rose by 16% and 15%, respectively, making the LNG price arbitrage for US exports more attractive”, said the ship owner.
GasLog added that “in the shorter-term shipping market, spot rates in the third quarter increased from multi-year lows reflecting new LNG supply coming online and the restarts of the Gorgon and Angola LNG projects, which removed vessel re-lets from the market. From January to September 2016, there were approximately 210 spot fixtures completed compared to approximately 130 for the same period last year, an increase of around 60%. Whilst it is too early to predict a sustained recovery, we believe that fundamentals continue to point to a recovery in 2017 and beyond”, the ship owner concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide