LNG Market Poised for Massive Growth

There has been plenty of talk recently about the birth of a spot and short-term charter market for lng carriers. Indeed some LNGoperators have formed strategic alliances to prepare for these potentially new trades.

However, R.S.Platou Shipbrokers of Norway believes that the volume of LNGtonnage currently on order could yet force some owners to work short-term deals by the end of this decade whether they like it or not.

According to the broker’s statistics, some 60 new LNG carriers will have been ordered during this year and, by the end of November, the orderbook consisted of 104 vessels equivalent to about 80% of the existing fleet.

“By taking some scrapping into account, the world LNGfleet is therefore set to grow by 9% annually in the period to 2010”, the broker estimates in a recent report. However, still more LNG carriers are likely to be ordered in the months ahead, Platou believes, and the pace of fleet expansion could become even faster, perhaps hitting 12% by the end of 2010.

It is a fascinating potential market for the relatively few ship repair yards with a track record in LNGrepairs. Many of the new trades are likely to be focused on the Atlantic basin where there is really only a handful of repairers with demonstrable expertise. Much of the existing lng fleet consists of older vessels which require significant repairs and some upgrading work. For example, new radar-based tank gauging systems are being retrofitted to older lng vessels and such work should offer a rich seam of business in the months ahead.

Gothenburg-based Saab Rosemount, a subsidiary of Emerson Process Management which offers companies scope to automate the production, processing and distribution systems, believes that up to 80 older lng carriers are likely to need new cargo monitoring systems. Its own Custody Transfer Measuring System uses radar-based equipment to provide an extremely accurate means of monitoring cargo volumes. Five retrofits have already been carried out, the company says, (LNG Delta, Galeomma, Gimi, Hilli and Golar Spirit) whilst Golar’s Khannur is due to be fitted with new radar-based cargo measuring equipment within the next couple of months.

Platou believes that LNG builders could be turning out as many as 40 new ships/year by 2010 and questions whether the number of new projects will be sufficient to absorb that scale of extra tonnage. Over the last decade, Platou says, the annual increase in lng shipping demand has averaged 9% but is likely to rise significantly in the future. “Long term contracts already signed between suppliers and buyers indicate that trade volumes will grow by 8.5% per annum and are currently set to peak in 2007”, the broker says. However, as new contracts are signed and existing ones extended, the peak is likely to shift out in time.

Moreover, Platou believes that by taking distances into account, contracted volumes will actually increase shipping demand even more. The average distance for traded volumes, the firm believes, has increased by 30% over the last decade and could increase by a further 10% by 2010, largely as a result of the significant number of Middle Eastern projects that are due to come on stream by then.

Platou points out that Cedigaz, a natural gas information association, has projected that future trade volumes will grow by between 6.7% and 9.3% annually until the end of this decade based on low and high scenarios. Adding in an extra 10% for transport distances, this should result in demand growth of between 8 and 11%, says Platou. Comparing this with fleet growth of 12% indicates “a declining utilisation rate of the world lng fleet and thus a softer shipping market”, the broker believes which in turn should stimulate a growing short-term market. “In line with a trend among lng importers to seek more flexible off-take contracts …vessels may have to settle for short-term business”, says the broker. “Depending upon the availability of cargoes, we believe this could be a main driver towards a spot lng market”.