News & Media

01 March, 2019

LNG Market News - Japan

(Source: Kaiji Press News 01/Mar/2019)

LNG carrier slipway supply-demand balance may tighten

Fleet buildup with NBs may be frontloaded to meet surging LNG carrier demand

A “lack of slipways” for construction of LNG carrier newbuildings has become ever more realistic on the back of an expected surge in demand for such newbuildings due in part to final investment decisions (FIDs) for large-scale LNG development projects set to be made one after another in/after 2019 and in part to the likelihood of newbuilding orders being placed by speculative sources. The annual LNG carrier construction capacity worldwide is estimated at 40-50 units in real terms. Yet, it is feared that operators in some LNG development projects may fail to take delivery of newbuildings as initially hoped. If the supply-demand balance for slipways gets tighter, prices of LNG carriers, having hovered at a low altitude, may gain upward momentum. As such, it has begun to be pointed out that in order to secure slipways and prevent ship prices from soaring due to an abrupt surge in order placement, marketing talks for LNG carrier newbuildings could be conducted earlier than initially scheduled.

On the other hand, “While the slipways South Korean shipyards hope to sell right now are for newbuildings to be delivered in around 2022, large-scale LNG projects are slated to become operational in about 2024, and so, project operators see no immediate need to secure slipways. They find it necessary to specifically ascertain how and when they have to secure LNG carriers as well as construction capabilities of shipyards,” a shipping-related official comments level-headedly.

According to related sources, the combined annual LNG carrier construction capacity of shipyards worldwide comes to 50-60 units on the assumption that all slipways are filled with LNG carriers. Yet, slipways are actually used for construction of not just LNG carriers but other categories of vessels as well, and so, practical annual LNG carrier supply capacity is estimated at 40-50 units.

For instance, Qatar has mapped out a plan to reinforce its annual LNG production capacity from 77 million tons at present to 110 million tons by 2024. To export this amount, LNG carriers to the tune of 60 units are said to be required, and it is reported Qatar is already in talks with South Korean shipyards toward signing construction contracts. A related official anticipates, “The project in Qatar alone may occupy up to one and a half years’ worth of global LNG carrier construction capacity.”

In 2018, newbuilding orders for LNG carriers worldwide hit an all-time high of close to 70 units. In early 2018, slipways focused on delivery in the latter half of 2020, but as a result of a subsequent rush of orders, it is said that slipways have been extended to delivery in/after the latter half of 2021. If gigantic order-placement projects from Qatar are added under such circumstances, slipways that can be supplied by yards will be filled with workload for further advanced delivery, though it depends on exactly which timing of slipway owners need to secure.

On top of the project in Qatar, many other promising projects for new LNG production and expansion are set to become operational. In October 2018, the FID was taken for “LNG Canada”, a large-scale LNG development project in the country in which Mitsubishi Corp. has a stake. Starting with LNG Canada, FIDs are highly likely to be made for such projects as Area 1 of “Mozambique LNG”, in which Mitsui & Co. has a stake, and “Arctic LNG 2” development project in the Russian Arctic. The FID was also taken recently for “Golden Pass LNG” project being planned in the U.S. state of Texas by ExxonMobil of the U.S. and state-run Qatar Petroleum International.

A shipping official comments, “In/after 2019, newbuilding marketing talks for LNG carriers will boil up. Though the scale of such talks will be different depending on destinations and so forth, there is no doubt that total tonnage of LNG carriers involved will become enormous, and so, we have geared up for the forthcoming high-profile marketing talks.”

Demand for LNG carriers is highly likely to grow stronger on the back of not just the above large-scale LNG projects, but speculative orders as well. The predominant view in related industries is that in 2019, spot freight rates for LNG carriers will settle at high levels above the breakeven point, and prospects of such rates in/after 2020 are not bad. Such a bright outlook for the LNG carrier market appears highly likely to prompt Greek and other owners to put speculative orders, thus helping increase orders for LNG carrier newbuildings.

In 2018, newbuilding orders for LNG carriers were dominantly won by Korea’s Big Three yards, comprising the Hyundai Heavy Industries (HHI) Group, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME). In Japan, orders were limited to only one for an LNG bunkering ship bagged by Kawasaki Heavy Industries (KHI), with no orders for standard-type LNG carriers coming to the surface. Yet, if the slipway supply-demand balance gets tighter and ship prices go up from here on, Japanese yards, too, may have chances to win orders.

Ship prices have already bottomed out. Samsung recently received an order for four LNG carriers from a U.S. owner at $193 million apiece. Details such as ship type and specifications are not disclosed, but the price is $6-8 million higher than the current market level, believed to be high-priced contract fixed after a hiatus of about two and a half years.

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.