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.

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 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."

People & Company News

STX to Slash Jobs, Sell Yard

To stat above water by restructuring, South Korean Shipbuilder STX Offshore & Shipbuilding Co. plans to lay off about a third of its workforce and sell a yard in France, says a report in WSJ.

Kongsberg Performs Well in Q2

Norwegian defence and marine technology company Kongsberg Gruppen's second quarter 2016 (Q2) financial results shows sales performance broadly in line with recent trends,

Rickmers Holding, E.R. Capital Drop Merger Plan

Rickmers Holding AG and E.R. Capital Holding have jointly decided not to pursue the merger of their ship management activities.   For many years the companies

Tanker Trends

Hellenic Petroleum Profits Rise on Higher Exports

Hellenic Petroleum, Greece's biggest oil refiner, posted a 20 percent rise in second-quarter core profit on Thursday, with higher exports offseting lower refining margins.

Alfa Laval Launches DuroShell LPG/E Cargo Condenser

With the new Alfa Laval DuroShell plate-and-shell heat exchanger, Alfa Laval aims to strengthen its offering in LPG/E cargo reliquefaction with a construction that

Navy Discovers Malaysian Tanker

Indonesia's navy has found a tanker carrying almost US$400,000 worth of diesel that was taken by its own crew last week due to a commercial dispute, says a report in AFP.


SOS from Hanjin Shipping

The creditors' extended help is crucial for survival of Hanjin Shipping Co as its negotiations with owners of chartered ships over a cut in leasing rates and to

NParks, Keppel in S$2.08 mln Partnership for Restoring Singapore Forest Wetlands

The National Parks Board (NParks) and Keppel Corporation today unveiled plans for a partnership to restore the freshwater forest wetland ecosystem historically

Skaugen Goes to Red Again

Norwegian Marine Transportation Service Company I.M. Skaugen SE reported interim losses but cautiously positive and expecting a gradual recovery of trading opportunities


BP, ExxonMobil, ConocoPhillips 'Quit' Alaska LNG Project

BP, Conoco Phillips, and Exxon Mobil said that the 65-billion dollar megaproject would be too unprofitable for them to move into the next phase of development.

Viking Grace Marks 1,000 LNG Bunkering Milestone

From the very beginning, the M/S Viking Grace – delivered in January 2013 – was an environmental milestone.   The vessel attracted global attention as an environmental

Hoegh LNG Profits Dip

Norway-based owner and operator of floating LNG import terminals, Höegh LNG  reported a second quarter profit after tax of US$3.5 million, down from $6.3 million in the first quarter 2016.


Coast Guard Foundation Awarded 128 Scholarships

The Coast Guard Foundation, a non-profit organization committed to the education and welfare of all Coast Guard members and their families, announced today that

Keppel to Deliver First North Sea FPSO

Keppel Offshore & Marine (Keppel O&M)'s wholly-owned subsidiary Keppel Shipyard Ltd (Keppel Shipyard) is on track to deliver a Floating Production Storage and Offloading

NASA May Send Submarine to Titan

NASA has unveiled plans to send a submarine into the depths of the largest ocean of Saturn's biggest moon, Titan in a bid to explore the depths of its largest ocean.


C-Job Designs Flettner Freighter for Switijnk

The Dutch shipping company family Switijnk has contracted C-Job Naval Architects to develop a Rotor Sail-equipped design to meet their specific loading and sailing profile.

Damen Trading Sale hits 500th Vessel

30 years and 500 vessels later, Damen Trading is just getting started. Damen Trading’s story begins in 1986, with Damen Shipyards Group responding to growing market demand for used vessels.

Matson Orders Two ConRo Ships from NASSCO

Matson Navigation Company, Inc., a subsidiary of container shipper Matson, Inc., has signed a contract with U.S. shipbuilder General Dynamics NASSCO to build two

Maritime Contracts Maritime Security Maritime Standards Navigation Offshore Oil Port Authority Salvage Ship Electronics Ship Repair Shipbuilding / Vessel Construction
rss | archive | history | articles | privacy | 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: 0.1421 sec (7 req/sec)