LNG Shipping Outlook Stays Positive

The outlook for LNG shipping is still positive claims ship owner GasLog, which in its latest market outlook, noted that long-term charters remain positive. The company recently signed a new 7-year time charter with Total, which reflects the resilience of long-term rates, against the volatility of the shorter-term market. GasLog added that it continues to see a number tenders for multi-year charters for vessels, which will be used to transport volumes from new liquefaction facilities coming online over the coming years.

According to the company’s analysis, “in the second quarter, there were several announcements highlighting the ongoing demand for LNG carriers. In May, PETRONAS’ floating liquefied natural gas (“FLNG”) facility was delivered for operation in Malaysia. The facility is the first of a number of FLNG projects that are scheduled to come online in the next few years. In June, Kinder Morgan received Federal Energy Regulatory Commission (“FERC”) approval for its Elba Island project (“Elba Island”). The 2.5 million tonnes per annum (“mtpa”) project is expected to come online in 2018 and is supported by a 20-year contract with Shell for 100% of the liquefaction capacity. Elba Island is one of several liquefaction projects that has not taken final investment decision (“FID”), but continues to make progress in the current commodity price environment. The expanded Panama Canal also was completed in June 2016 and has seen a number of vessel transits. The opening of the expanded canal, which accommodates larger vessels including LNG carriers, should stimulate increased LNG trading activity between the Pacific and Atlantic basins due to greater destination optionality. On July 25, 2016, the first ever LNG carrier transit went through the expanded Panama Canal as the Maran Gas Apollonia, which is on charter to Shell, entered the locks on the Atlantic side carrying a cargo from the US Gulf Coast to Asia. Three more LNG transits have been booked in the next month”.

GasLog added that “new liquefaction projects representing approximately 140 million tonnes per annum of capacity have taken FID and are scheduled to come online between now and 2020. On the demand side, there have been sizeable year-on-year increases in import volumes from many new and existing nations looking to take advantage of low cost LNG. For example, for the six months to June 30, 2016, China and India have imported 29% and 45% more LNG, respectively, versus the same period in 2015. New importers such as Jordan, Egypt, Pakistan, and Lithuania have seen imports rise significantly in 2016 through the use of floating storage re-gasification units (“FSRUs”), which are typically quicker to market and offer greater flexibility than land-based terminals. We expect FSRUs to create additional demand in both new and existing markets for the new LNG coming online. In the shorter term market, spot market rates through 2016 have plateaued around multi-year lows. Whilst it is too early to predict a sustained increase in the spot market, there has been a marked uptick in spot charter terms in recent weeks, with slightly improved freight rates and the ability to achieve round-trip economics on a more frequent basis”, GasLog concluded.

Meanwhile, in a separate report, shipbroker Alibra Shipping seeked to determine whether the hefty newbuilding ordering activity of Greek ship owners towards the LNG market in the past few years, is proving to be a safe bet or not. Alibra had sais that “most of the LNG carrier orderbook was ordered in anticipation of new liquefaction trains coming onstream, but depressed energy markets have delayed commissioning of important LNG infrastructure projects. This year alone, four projects have been delayed in Canada, plus those in Cameroon and Oregon in the US, and a number of floating LNG (FLNG) liquefaction facilities. However, since January, the Asia-Pacific LNG, Sabine Pass and Gorgon liquefaction trains and the second Gladstone LNG train have come online, which has helped improve vessel utilisation”. Alibra added “How quickly markets change in this business. Just two-and-a-half years later, LNG freight rates, formerly the source of so much optimism, are low and around 88% of the current LNG carrier orderbook is to be delivered from 2017 onwards. Firm orders for seven LNG carriers have already been cancelled. Only four new LNG carriers have been ordered in 2016 so far, after Maran Gas and SK Shipping both ordered two. Maran has options for two more”, the shipbroker concluded.

Source: Hellenic Shipping News Worldwide