News & Media

25 February, 2019

LNG Market News - Japan

(Source: Kaiji Press News 25/Feb/2019)

First Japanese shipowner to take part in LNG NB project

Participation by a Japanese shipowner in an LNG carrier newbuilding holding project is taking shape for the first time ever. According to informed sources, a dedicated provincial owner is planning to have a standard-type vessel built at a South Korean yard on behalf of a Japanese shipping operator. Amid a lack of new investment programs, the owner is aiming to get a depreciation asset by possessing an LNG carrier, which is highest-priced among general merchant ships. Japanese owners have pursued a policy to take hold of larger and diversified ships. Now they seem to be finally branching out into the LNG carrier business.

Details such as a charter period and management system for the projected LNG newbuilding are unclear. There has been a single case where an LNG carrier has been possessed by a Japanese owner. But that was a secondhand vessel. The planned project seems to be the first where a Japanese owner is chartering out an LNG carrier newbuilding to a compatriot operator.

For the past 15 years, Japanese owners have advanced a policy to possess larger ships and diversify their types. They have focused their investment on Panamax and Handysize bulkers. Many of them own Capesize bulkers and some have 300,000-dwt ore carriers in their portfolio. Banks and trading houses used to say, "Some owners even keep a 20,000-TEU containership. We wouldn't be surprised if they possessed an LNG carrier." The new project means that the ship holding business in Japan is now spreading to all types of merchant ships.

One of reasons for the slow in possessing of an LNG carrier to date was the need to have a huge amount of own funds. A standard model costs more than Y20 billion to build, the highest among merchant ships. It was not easy for owners to possess one on their own.

However, major owners have become more financially viable and many of them can now afford to possess an LNG carrier. Another encouraging factor is that banks are keen to provide ship finance. Amid a slump of newbuilding order placement, chances have arrived for owners to possess an LNG carrier, which can be a big depreciable asset.

Japanese operators, faced with growing financial burdens in their LNG carrier and offshore structure business despite a prolonged bleakness of earnings results, have been discussing procurement of LNG carriers through employment of owners. They can ease their burden by forming partnership with owners.
The planned participation by an unnamed owner in an LNG carrier newbuilding project is about to take shape. Will more owners follow suit? The answer is not necessarily yes. There will be only a limited number of owners who can afford to do so, given their funding difficulties and special skills they need to have in shipmanagement.
Still, an owner told Kaiji Press (KP), "We will look at the possibility of possessing an LNG carrier. There is no doubt that demand for LNG will keep growing in the face of environmental regulations. As the money glut continues and the competition in bulker operation remains unabated, we want to secure a different revenue source. We can think it will be less risky to build a single LNG carrier instead of four Capesize bulkers."

The move to possess an LNG carrier is likely to persist though there may not be many such owners.

(Source: Kaiji Press News 25/Feb/2019)

Qatar well-positioned to meet Asian LNG demand, minister says

Gulf nation bullish on upping gas production and remains doubtful of renewables

DOHA -- Qatar is ready to further boost investment in liquefied natural gas production, beyond its current plan to increase annual capacity to 110 million tons by 2024, according to Energy Minister Saad Sherida al-Kaabi.

In an interview with Nikkei, Qatar's energy czar said Asian demand for LNG will continue to grow rapidly and that he remains skeptical the world will shift significantly from fossil fuels to renewables in the near future.

"Asia is the biggest market for LNG, or fuels in general, because that is where [economies are growing], and that is where the need is," al-Kaabi said. "For us, the Asian market is a fundamental market and we have great relationships politically with all the Asian countries."

The minister stressed the importance that Qatar places on relations with Japan, which has paved the way for LNG imports. "Japan in particular has a very special place in our heart, and we are looking to extend our contracts with Japanese companies," al-Kaabi said.

al-Kaabi noted that in the aftermath of the Fukushima nuclear disaster, Qatar canceled LNG shipments to other destinations, diverting them instead to Japan and selling them at contract prices, despite gas prices being "very high" at the time.

"We wanted to show the people of Japan our respect," he said.

Turning to other Asian markets, al-Kaabi continued: "Indonesia has huge potential and is an untapped market. [The] Philippines is a huge market that has not opened up fully to gas. Pakistan has a huge requirement and bought from us. Bangladesh has a population of 160 million and ... India may need as much gas as China."

LNG is natural gas cooled into liquid form for ease of transport. It requires more processing than natural gas, which Russia delivers to Europe via pipeline, but is the only practical way to transport large volumes of natural gas to overseas markets in Asia.

Concurrently serving as president and CEO of Qatar Petroleum, al-Kaabi said plans are underway at the state-owned energy company to increase annual LNG production capacity by 40% from the current 77 million tons. But, given expectations for greater Asian demand, he is preparing to raise the capacity even more.

In 2017, Qatar announced a plan to ramp up annual production capacity to 100 million tons by 2024, but revised it last year to 110 million tons.

The minister feels the new goal may still be inadequate for Qatar to maintain its status as the world's leading LNG exporter, a position it briefly lost to Australia in 2018. By the end of 2019, it will likely raise the bar again, developing gas fields in Africa and North America to maintain its top spot and keep up with Asian demand.

The minister also stressed that while concerns over climate change are driving attempts to develop alternatives to fossil fuels, natural gas is still cleaner than oil or coal.

While use of renewable energy sources is expanding, al-Kaabi said many uncertainties surround them. The minister also challenged the assumption that the world will quickly wean itself from fossil fuels and that natural gas is a transitional energy source, saying instead that it is the future of energy.

Qatar Petroleum will finance its own expansion without relying on bond issues and bank loans, al-Kaabi said.

Regarding Qatar's exit from the Organization of the Petroleum Exporting Countries in January, the minister said it was necessary to reinforce the nation's gas strategy. "In the U.S. and other places, we could potentially face legal issues against OPEC, where we would be dragged into something that we do not see much value in," he explained.

Following its exodus from the cartel, Qatar made plans to develop natural gas production in Mozambique and announced the discovery of a huge gas field in South Africa. Earlier this month, Qatar also decided on a joint investment of $10 billion with Exxon Mobil to build an LNG export facility in the U.S. state of Texas.

In 2017, Saudi Arabia, the United Arab Emirates and other Gulf states imposed a political and economic blockade against the country. But despite the blockade, al-Kaabi said Qatar continues supplying natural gas to the UAE, partly as a way to demonstrate to Asian customers Qatar's reliability as an energy partner.

Market participants widely regard Qatar's withdrawal from OPEC as a response to the Saudi Arabia-led blockade.


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