Press release

15 February, 2019

LNG Market News - Japan

(Source: Kaiji Press News 15/Feb/2019)

LNG from Ichthys enters Naoetsu via K Line's LNG ship

Kawasaki Kisen Kaisha (K Line) announced on Feb. 13 that the Oceanic Breeze, its LNG carrier loaded with LNG produced at Australia's Ichthys LNG Project, made first call to Naoetsu LNG Terminal operated by INPEX Corp. in Joetsu, Niigata pref., on Feb. 12. In addition to LNG, the K Line group is scheduled to haul LPG and condensates as well from Ichthys project which is characterized as "All Japan" project.

Ichthys is an LNG project operated by INPEX jointly with other participants. The Oceanic Breeze is owned by Oceanic Breeze LNG Transport S.A. jointly set up by K Line with a 70% stake and INPEX Shipping with remaining 30%. INPEX Shipping is a wholly owned subsidiary of INPEX. The Oceanic Breeze is dedicated to haul 900,000 tons of LNG per year from Ichthys LNG project to INPEX's Naoetsu terminal.

The first shipment of LNG from Ichthys was made in October 2018 via K Line's LNG carrier, the Pacific Breeze. Further, Ichthys-produced first LPG was hauled by K Line's large-size LPG carrier, the Grace River, in January 2019. It is also planned Aframax tankers operated by K Line's subsidiary in Singapore will haul condensate products.

Ichthys is the first large-scale LNG project with global standards developed by Japanese entities, with about 70% of some 8.9 million tons per year of LNG produced by the project will be supplied to buyers in Japan. Further, Japanese companies are major participants in crucial parts of the project's value chain, including exploration and production of gas fields, building of liquefaction plants and receiving terminals, laying pipelines, and maritime transport. From the "All Japan" project, on top of LNG, about 1.65 million tons per year of LPG and around 100,000 barrels of condensate per day at peak are planned to be produced and shipped.

(Source: Kaiji Press News 15/Feb/2019)

Future solution for GHG cut with LNG fuel at core

Experts from Japan, overseas had discussion in international seminar

The Japan Transport and Tourism Research Institute (JTTRI) organized an international seminar on Feb. 7 to discuss the potentiality of LNG as alternative marine fuel. Views were exchanged at a panel discussion held during the seminar regarding the position of LNG fuel as a solution to clear the ambitious target the International Maritime Organization (IMO) has set to reduce greenhouse gas (GHG) emissions. Many panelists said it is realistic to address the issue by focusing on the development of LNG fuel and combining it with other technologies.

IMO established a high hurdle in April 2018 to decrease the overall amount of CO2 and other GHG emissions from the global shipping business by 50% or more by 2050, compared to 2008. To clear the hurdle, however, introduction of low-carbon fuel like LNG alone, would be insufficient, as the reduction of CO2 can be achieved only around 30% cut of GHG even if all vessels ran on LNG. Now hydrogen and other fuels are newly being considered. What position of LNG will be after considering such a future development?

The answer for this question, Akira Ishihara, director of the Ocean Development and Environment Policy Division at the Maritime Bureau, Ministry of Land, Infrastructure, Transport and Tourism (MLIT), said that technologies for LNG-fueled ships will be placed at the center, combined with other energy-saving technologies. As for the IMO's target to realize zero CO2 emissions eventually, there is an idea of retrieving CO2, while using LNG as marine fuel, bringing it back to ships as synthetic fuel and consuming it, he claimed. "It is important to accumulate LNG fuel technologies," he added. 

Masamichi Morooka, president of Yokohama-Kawasaki International Port Corp. (YKIP), stated the reduction of 50% in absolute quantity is too high a hurdle to cross, but it is realistic to think about next-generation fuel while using LNG. Peter Keller, chairman of SEA/LNG, stressed that "LNG is a safe solution before our eyes." "What should be done now is to use it and take steps forward," he added. Alan Lim, deputy director (port services) at the Maritime and Port Authority of Singapore (MPA), also made favorable comments. "As long as the IMO's strategies are concerned, it is possible the target could be reconsidered, but it is not necessary to be influenced, he said. There is no reason not to use LNG fuel, as it has been verified to be safe," he added. 

Morooka touched on the future prospects of vessels consuming LNG fuel as well. "The global fleet is made up of 80,000 vessels, and assuming each of them is operated for 20 years, 4,000 vessels are constructed every year for replacement," he said. "It is a question how much portion of them will shift to LNG-fueled but if the bulker segment, which takes up a large number of the whole vessels, adopt LNG fuel, the overall number of LNG-powered vessels would grow more rapidly. If ship types are standardized, construction costs could decrease as well," he added. The number of LNG-fueled ships will definitely increase, according to Koji Shinozaki, General Manager of Nippon Yusen Kaisha (NYK)'s Fuel Group, who continued to say that "It will be, however, influenced by future regulation implementations/enhancements." Hiroki Sato, senior executive vice president of JERA, anticipated future demand for LNG fuel, saying "It could grew for as much as 50 million tons, equivalent to the amount that China imports. JTTRI survey and research has envisaged the number of LNG-powered ships will reach 228 in 2020 and 349 in 2025.

(Source: Kaiji Press News 15/Feb/2019)

Japan overtakes Korea in NB constructions in 2018

Holding 25% share in global market

Newbuilding completion volume in 2018 by Japanese shipbuilding industry surpassed South Korea's volume for the first time in 17 years since 2001. According to preliminary figures released by IHS Markit, Japan's newbuilding completion volume in January-December 2018 grew 11% year-on-year (on grt basis) with 425 ships totaling 14.43 million grt, and Korea's volume plunged 36% to 199 ships of 14.31 million grt. Global share was 25% respectively for both countries, but Japan slightly exceeded Korea. Given increasing construction of mega-containerships and other large-size ships, Japan's volume reached the highest level in the past decade, but Korea's volume sank to the lowest in ten-odd years due to successive suspension of dock operation and so forth.

Global newbuilding construction volume in calendar 2018 dipped 12% year-on-year to 2,171 ships of 57.32 million grt. Of the total, Japan gained 11% with 425 ships of 14.43 million grt, Korea lost 36% with 199 ships of 14.31 million get, and China lost 4% with 728 ships of 22.82 million grt. China carved top share with 40% in construction volume, taking over top position from Korea. Korea, slipping to second spot, saw its construction volume dip below 20 million grt for the first time in 11 years, with its global share falling below 30% for the first time in 20 years. Meanwhile, Japan's global share surpassed 25% for the first time in 10 years.
In Korea, order receipts widely declined in 2015-2016. Given this, shipyards advanced reduction of construction facilities and workforce toward 2018 when dock operations were expected to sink to lowest levels. Operation is still ceased at some medium-tier shipyards. At Chinese shipyards as well, though they hold top global share, their construction volume shrank due to shakeouts and industrial reorganization. Amid yards' operation levels falling globally due to shipbuilding recession, Japan relatively expanded its share with increased construction of large vessels.

At Japanese shipyards, construction volume expanded in tonnage terms by building mega-boxships, medium/large-size tankers and such, but yards are adjusting operational levels in parallel with market stagnation. In terms of ship units, Japan's volume slipped 6% in 2018, with its constructed vessels sagging by 5% or so annually for the past few years.

By ship type, Japan in 2018 completed 144 bulkers of 5.75 million grt, 122 tankers of 3.4 million grt, 27 boxships of 3.02 million grt, 12 LNG carriers of 1.62 million grt, nine LPG carriers of 130,000 grt, and 56 cargoships of 320,000 grt. Construction ratio of bulker fell short of 40% on grt basis, quite unusual, with acceleration of product mix becoming conspicuous. In particular, gas carriers and boxships exhibited marked growth of four times and 93%, respectively.
Japan retained a 30% share in global construction volume for a long period of time. Yet, China and Korea drastically expanded their volume during the shipbuilding boom, and so, Japan's share relatively continued to decline, slipping below 20% for the first time in 2011. Its share subsequently has been evolving around 20%.

(Source: Kaiji Press News 13/Feb/2019)

Osaka Gas upgrading flexibility of LNG carrier fleet

Osaka Gas Co. is pushing ahead with initiatives to enhance the flexibility of its LNG carrier fleet. The company, which forms its fleet with seven vessels long-term chartered from domestic shipping firms, has made short-term charter deals with other shipowners in a bid to address future changes in transport demand with greater flexibility. While Osaka Gas has not taken a policy to exclude foreign owners and shipmanagement firms in doing business, it has now short-time chartered a vessel from a foreign owner for the first time. The vessel is based on membrane-type tanks. Osaka Gas, which has relied only on familiar Moss-type LNG carriers, intends to build up its expertise and knowhow on membrane-type vessels. It noted, "There is growing uncertainty over bottoms demand," and said it will eye various options for its future tonnage procurement.

Osaka Gas purchased about 9.5 million tons of LNG in fiscal 2017 under its long-term contracts with nine nations. It expects the volume will increase to more than 10 million tons in fiscal 2020. The main supply sources in fiscal 2017 were Australia, Papua New Guinea, Oman, Malaysia and Indonesia. In fiscal 2020, the U.S, will be the second-largest supplier after Australia, to be followed by Papua New Guinea, Oman and Malaysia. Osaka Gas has a 25% equity stake in the U.S. Freeport LNG project. When the project comes on stream within 2019, Osaka Gas will be annually importing 2.32 million tons of LNG. Its procurement ratio via FOB deals will increase to more than 70% in fiscal 2020 from 50% in fiscal 2017.

Osaka Gas also sells LNG to its corporate customers both at home and abroad. It has already concluded contracts to sell more than 3 million tons out of over 10 million tons it will procure in fiscal 2020.

Osaka Gas forms its fleet with vessels long-term chartered from domestic owners and uses them for LNG import and trading. It looks to optimize its tonnage deployment by spot-chartered vessels while chartering out some of its vessels in keeping with changes in transport demand.

Osaka Gas currently long-term charters seven LNG carriers. The latest addition to its fleet is the 180,000-cbm LNG Juno, completed at Mitsubishi Shipbuilding (MSB) in November 2018 and chartered from Mitsui OSK Lines (MOL) for deployment in the Freeport project. Upon taking delivery of the ship prior to the start-up of the Freeport project. Osaka Gas currently uses the vessel in other projects and charters it out to third parties. It has also signed another charter contract with MOL on the LNG Saturn, a 153,000-cbm unit completed in 2016 by MSB, to move LNG from Australia's Ichthys LNG project. The contract is slated to take effect within fiscal 2019.

Meanwhile, Osaka Gas in 2018 sold its equity stakes in the 1993-built LNG Flora and the 1994-built LNG Vesta and began short-term charters as replacement of these units. Osaka Gas now sees replacement of aged vessels as a constant option.

Kiwamu Hashimoto, general manager of Shipping Team, Resources Trading Unit at Osaka Gas, said, "We assume various uncertainties and changes of a situation in future tonnage demand. With short-term charters, we may have risks of a future rise in charter fees, but we can flexibly replace ships by checking ship types and charter fees in tune with demand," thus explaining why Osaka Gas has changed its policy to short-term charter vessels. The ship Osaka Gas began short-term chartering in 2019 belongs to a foreign owner. Hashimoto said, "Ten years ago, almost all LNG carriers were owned and managed by Japanese firms, but units owned/managed by foreign firms are increasing. We select ships we charter by checking the quality of shipmanagement services."

The vessel Osaka Gas short-term charters now is a 163,000-cbm membrane-tank unit. Hashimoto stated, "There is not a single ship type that can satisfy all requirements in LNG transport demand. We have decided to challenge a membrane-type vessel this time to prepare ourselves for the future." Faced with an increasingly active LNG trading, Osaka Gas is aiming to acquire knowhow on ships other than the traditional Moss type with an eye on their compatibility with ports of call.

On future fleet formation, Hashimoto claims, "Based on the present situation where we keep a number of long-term chartered vessels, we hope to form a fleet with much optionality to meet changing demand, including short-term charters. Demand is what we always mind. When we procure LNG under FOB contracts, we need to prepare a ship on our own. But that is not necessary when we make DES deals. When we replace our future LNG purchase deals, such contracts may not necessarily be concluded via FOBs. We also need to see future developments of LNG sales in our trading. We will take a strategy to meet situations with flexibility rather than committing ourselves to long-term charters."

As to LNG transport from the Freeport project, Hashimoto said his company may need to have one or two more ships depending on cargo destinations, but added that it may not need to build up its fleet by making swap deals. "If there is a method to maximize our profit and get total optimization without an additional tonnage procurement, we will take that as our option," he said.

On future bottoms procurement, Osaka Gas will not only long-term charter newbuildings as it has done in the past but also rely on various other options including short-/medium-term charter of existing vessels. Hashimoto said, "With a broad menu in mind, we will prepare ourselves so that we can take flexible steps."
He continued, "In the past, we could build competitive vessels by having a share in the vessel, making full use of our high credibility. We could also learn about cost structures related to LNG transport by having a relatively large share in the ship. I think we have already accomplished those purposes." With this, Osaka Gas has opted not to take equity stakes in the LNG June completed in 2018, as well as in the LNG Saturn it will begin chartering in fiscal 2019.

Osaka Gas will enhance the role played by its affiliate Osaka Gas International Transport (OGIT) in LNG carrier ownership/chartering. OGIT already assumes ownership functions. It will get chartering functions transferred from the parent's Shipping Team. Osaka Gas and OGIT will be joining forces in discussing how to map out and execute an optimal tonnage procurement policy.


Whilst every effort has been made to ensure the accuracy of the information contained herein, Inchcape Shipping Services (ISS) accepts no liability nor makes any representations or warranties of any kind, express or implied, as to its completeness, accuracy, reliability or suitability.