Ship Glut Burdens LNG Tanker Market, Slashes Profits

Posted by Michelle Howard
Tuesday, March 11, 2014
LNG carrier rendering courtesy of MOL

By Jonathan Saul and Oleg Vukmanovic, Reuters

Deliveries of new gas tankers have created a glut that is threatening to tip some operators into losses, just as other shipping markets emerge from their worst downturn in decades.

The liquefied natural gas (LNG) tanker market was until recently the only bright spot in an otherwise depressed freight industry. A global surge in the demand for gas, led by Japan in 2011, boosted trade, tied vessels to longer routes and drove rental rates to record highs.

But the 119 new carriers ordered from 2011 will have expanded the fleet by over 30 percent by end-2017. As tankers leave the shipyards, delays in construction of new LNG export plants and erratic global gas output have curtailed demand for them.

Earnings have halved to around $70,000 per day over the past year, leaving only a thin profit margin. Owners that relied on financing to buy new vessels may be barely covering their debt payments.

"Some of the highly leveraged owners dependent on spot or short-term business will be close to their breakeven costs at current rates," Erik Stavseth of Arctic Securities said.

Industry analysts warn of a still deeper slump ahead as attempts by owners to delay deliveries of new vessels could result in a surge of additional capacity by year-end.

Thirty-two vessels were delivered to the global fleet this year, and another 63 are expected over the next two years.

"It is generally accepted that day-rates are not going back to 2011-2012 levels this year as there are just too many vessels available in the market," said Jon Skule Storheill, chief executive of Norwegian ship owner Awilco LNG.

"We need to see more LNG volumes on the water as well as some older vessels disappear first," he added.

Golar LNG described the market as very challenging in February due to growing supply and lacklustre LNG output.

Scrapping
The lower returns are putting pressure on ageing vessels, known as Old Ladies, to retire, given their higher costs for maintenance, upkeep and fuel.

Data from maritime analysis firm VesselsValue.com showed that 13 LNG tankers have been scrapped since 2010. Another 42, which are 30 years or older, are candidates for scrapping, Stavseth said.

The oldest LNG tankers now in the fleet - the 1969-built SCF Arctic and SCF Polar - are to be sold for scrap by Russian owner Sovcomflot Group this year once their charters with Spain's Gas Natural Fenosa expire.

Norway's Hoegh LNG has sent its Norman Lady, a 1973-built vessel, to a Chinese scrap yard, where the metal will be stripped and resold.

Peter Sand, chief shipping analyst with trade association BIMCO, said the ships scrapped were mainly smaller LNG carriers. "LNG vessels live a very long life," he said. "For fundamental oversupply to crumble into dust, we need at least two to three years of strong demand growth to counterbalance the recent contraction."

Fragile Recovery
In contrast, rates are rising for crude and oil products tankers and for the dry freight market after over five years of depressed conditions.

"Most shipping markets, with the exception of LNG, are in the early stage of a cyclical revival as fleet growth falls below trend for the next several years, while a stronger global economy revives growth in tonnage demand," RS Platou Markets said in a report.

Ship owners in those segments ordered large numbers of vessels between 2007 and 2009, just as the global economy sank into its biggest crisis since the 1930s. It usually takes three years for a vessel to be delivered after it is ordered.

"The pace of new deliveries is slowing down sharply, with only a handful of crude tankers delivered in both Q4 last year and the year-to-date in 2014," Pareto Securities said.

"We believe this will continue in 2014 and 2015, with many cancellations and delays on the ghost ships currently dominating the order books."

Maritime Reporter February 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

British Queen to Name New Ship

Queen Elizabeth II will christen P&O Cruises’ new flagship Britannia in Southampton, England, on March 10. She will be accompanied by her husband, Prince Philip, the Duke of Edinburgh.

Zamakona Yards' Commitment to Well-being

Recently employees of Zamakona Yards participated in a training course for maintaining Health, Safety and Environment (HSE). The theoretical practice focused on working at heights,

GasLog Post 4Q 2014 Results

GasLog Ltd. and its subsidiaries an international owner, operator and manager of liquefied natural gas carriers, today reported its unaudited financial results for the quarter ended December 31,

Finance

Jinhui Shipping Plummets to Loss

Norway listed dry bulk shipper Jinhui Shipping said the tough market that owners faced last year will become tougher in 2015.   Dry bulk shipping market Environment

Berenberg in $1.1bln Box Bid

The world's second-oldest bank Joh. Berenberg Gossler & Co. KG is lining up a new fund worth EUR 1bn ($1.1bn) for the containership sector.   A report appeared

GasLog Post 4Q 2014 Results

GasLog Ltd. and its subsidiaries an international owner, operator and manager of liquefied natural gas carriers, today reported its unaudited financial results for the quarter ended December 31,

LNG

Davie Building LNG-powered Ferries

Canadian shipbuilder Davie held a keel laying ceremony for MV Armand-Imbeau II, marking the beginning of the hull assembly for this first of two sisterships under

ClassNK Updates Guidelines for Floating Offshore Facilities

ClassNK released a new version of its Guidelines for Floating Offshore Facilities for LNG/LPG Production, Storage, Offloading and Regasification.   Available on the ClassNK website,

Lithuania Looks to U.S. for Gas

Lithuanian liquefied natural gas (LNG) importer Litgas has signed a preliminary agreement with a U.S. supplier, looking to lessen the Baltic nation's dependence on Russia.

News

China's Maritime Advances Worry US

The Director of U.S. National Intelligence, James Clapper, has expressed his concern at the progress of China in maritime zones it shares with its neighbors, accused

British Queen to Name New Ship

Queen Elizabeth II will christen P&O Cruises’ new flagship Britannia in Southampton, England, on March 10. She will be accompanied by her husband, Prince Philip, the Duke of Edinburgh.

Berenberg in $1.1bln Box Bid

The world's second-oldest bank Joh. Berenberg Gossler & Co. KG is lining up a new fund worth EUR 1bn ($1.1bn) for the containership sector.   A report appeared

Vessels

British Queen to Name New Ship

Queen Elizabeth II will christen P&O Cruises’ new flagship Britannia in Southampton, England, on March 10. She will be accompanied by her husband, Prince Philip, the Duke of Edinburgh.

Great Lakes Shipping Worries about Tough Spring

Ice conditions have been causing concern for Great Lakes shipping industry. The satellite images show that the Great Lakes once again almost entirely covered in ice.

Berenberg in $1.1bln Box Bid

The world's second-oldest bank Joh. Berenberg Gossler & Co. KG is lining up a new fund worth EUR 1bn ($1.1bn) for the containership sector.   A report appeared

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Pipelines Pod Propulsion Salvage Ship Electronics Ship Repair Ship Simulators Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2215 sec (5 req/sec)