News & Media

26 March, 2019

LNG Market News - Japan

(Source: Nikkei Asian Review 26/Mar/2019)

Asian LNG prices drop to three-year lows amid supply glut

Slower growth in Chinese demand raises doubts about US and Canada export plans

TOKYO -- Spot prices for liquefied natural gas used in power generation are at three-year-lows following a warm winter in Northeast Asia and the seasonal drop-off of demand in spring.

Prices are falling in response to increasing supplies of LNG worldwide and speculation that the world's second-largest importer, China, will slow its purchases. Spot prices are around $4 per million British thermal units, their lowest in nearly three years.

LNG prices typically rise as winter approaches, due to greater power demand for heating. But this year they began falling from their $11 per BTU peak in September 2018. That is mainly because China began stockpiling LNG earlier than usual, and because Northeast Asia had an unseasonably warm winter.

Meanwhile, supplies are growing. Production began in the second half of 2018 at the Ichthys and Prelude projects in Australia, in which Japan's Inpex has concessions. The U.S. is also expected to export more LNG this year as its output of shale gas grows, and Russia is exploring for natural gas in the Arctic Circle. According to U.K.-based energy consultancy Energy Aspects, global supplies of LNG are expected to rise 10% this year versus last.

On the demand side, market players believe the growth of China's LNG imports will slow. The Chinese government has been promoting a switch from coal to natural gas to combat air pollution. In 2018, its LNG imports jumped 40% on the year to 53.78 million tons. The previous year they rose 50%, causing spot prices to surge.

China's imports will continue to rise in 2019, but more slowly, said Nicholas Browne, senior analyst at research specialist Wood Mackenzie. "The pace of the shift [away from coal] will become more moderate. Plus, a pipeline to send natural gas from Russia to China will be completed at the end of this year." Browne said, dulling the country's appetite for LNG. He forecasts LNG imports will rise by 8 million tons this year, versus 15 million tons in 2018.

Construction of the Power of Siberia natural gas pipeline from Russia to China is on track and gas is expected to begin flowing by December, said a senior executive at state-run PetroChina in March.

Big Chinese energy companies shifted from spot contracts to long-term ones last year. Spot prices "are likely to fluctuate less throughout the year," said Tatsufumi Okoshi, senior economist at Nomura Securities.

Low spot prices could affect the development of new supplies of LNG. A growing number of analysts caution that plans to export LNG from the U.S. and Canada may not materialize.

"LNG buyers remain reluctant to sign long-term contracts, and hence project developers that are able to finance a project without firm offtake agreements seem to be in the driving seat," said S&P Global Platts Analytics in a recent report, referring to advance deals to purchase gas.

(Source: Kaiji Press News 26/Mar/2019)

Maritime industry concerned about rise in manning costs

Judging from growing global LNG carrier fleet, seafarer shortage seems inevitable

The growing demand for LNG ship seafarers and a resultant rise of manning costs may again pose a cause for concern to shipping operators. The global LNG carrier fleet has entered an expansion phase similar to the one last seen in the latter half of the 2000s. At the moment, there is no substantial rise of seafarer expenses. However, around 40 LNG carrier newbuildings are annually slated for completion through 2021, with a further fleet expansion expected following the start-up of large-size LNG export projects in mid-2020s. A Japanese shipping official cautioned, "We may inevitably face a short supply of seafarers in the near future." Meanwhile, Japanese operators who position the LNG ship business as one of growth areas are pushing ahead with plans to foster seafarers with an eye on their future fleet expansion programs. They are readying themselves for a tightening seafarer supply and higher manning costs in a bid to tide over the impact from the expansion of the global LNG carrier fleet.

Irrespective of ship type, the supply of ship officers (captain, chief engineer, navigation officers and engineers) stays relatively stable at the moment. The global fleet rapidly expanded in mid-2000s, creating a tight supply of seafarers to bring about an abnormal situation where manning costs saw a double-digit upsurge every year. But that is a past story. A rise of manning costs is moderate now that the expansion of the global fleet has calmed down amid the downturn of the world economy. Any sharp rise of seafarer expenses looks unlikely in the present situation. However, the expenses remain pegged at high levels due to the upsurge in the past. An official in charge of shipmanagement told Kaiji Press (KP), "Good seafarers are apt to be headhunted by other companies. Considering the current seafarer supply-demand environment, their wages should naturally go down. However, this is hard to come particularly for the top four officers like captain and chief engineer when we consider their possible drain."

Net investments in newbuildings stay curbed worldwide amid the shipping market slump in recent years. Even in such situation, the LNG carrier fleet keeps expanding. According to data made available by Clarkson, 511 LNG carriers (bigger than 40,000 cbm in capacity) were in service worldwide at the end of 2018. Orders for 68 units were placed in 2018, boosting the global order book to 122 units, or equivalent to 24% of the existing fleet. Newbuilding completions rose to 52 units in 2018 from just less than 30 a year earlier, indicating that the world has entered a period of massive completions. Most of the vessels on order will be completed by 2021. Newcomers are seen among the owners who have put newbuilding orders.

A Japanese shipping official said, "At the moment, costs of LNG ship seafarers are not going up. However, a shortage of seafarers will inevitably come out from here on." Another added, "As global LNG vessels will increase in number, we need to pay heed to a rise of seafarer costs."

A short supply of LNG ship seafarers and a resultant upsurge of manning costs had worried operators when the global fleet rapidly expanded in the latter half of the 2000s. However, the situation looks somewhat different this time around. When seafarer costs went up sharply last time, fleets of other ships such as bulkers also expanded, creating a shortage of seafarers for all types of ship. This time, however, an expansion of fleets other than LNG ships is slower. One of the above shipping officials said, "Considering that the current expansion of the bulker fleet is in a normal state, it remains to be seen whether seafarer costs will go up as fast as before."
Shipping operators who are stepping up efforts to foster seafarers may be able to shun a severe shortage of seafarers in the future. Japanese operators told KP, "We are pushing plans to upgrade our younger seafarers to senior positions and train them systematically in an effort to prevent an upsurge of seafarer expenses. We are also trying to enlarge our pool of seafarers," "We spend more human resources and money than before to train and secure seafarers," and "Seafarer costs may again go up. But we have expanded our seafarer sources and we now have a broader base of LNG ship seafarers. Our response capability is rising."

Operators of tankers including LNG carriers need to comply with the crew matrix set by major charterers, which requires seafarers to have a specified period of career with shipmanagement companies or relevant positions. This requires the operators to secure their seafarers in a planned way. Japanese shipping companies are stepping up their efforts to train and retain seafarers with an eye on their future LNG fleet expansion. This is expected to prove effective when a global demand for LNG ship seafarers expands in the future.

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.