This should be considered as short term rather than true spot; the spot concept as we know in the oil market is still some years away but it will arrive, possibly as soon as 2005. 1998 saw several short term deals, the largest being the Qatar to Turkey contract which involved eight cargoes delivered on the Osprey Maritime vessel "Gimi"; Qatar was also successful in placing a further three cargoes to Enagas, first lifting being in December 1998 on board the Bonny Gas Transport vessel "LNG Finima".

Duke Energy have continued to be active in this trade; they purchased five cargoes in addition to their 12 long term contract cargoes from Algeria: one cargo came from Algeria, three from Australia and one from Abu Dhabi. In addition to these "Duke" cargoes the Lake Charles terminal received another Abu Dhabi cargo for the account of Enron. The notable point of interest with these two Abu Dhabi cargoes is that they were delivered on project dedicated ships, the "Shahamah" and "Umm Al Ashtan". Thus we have a clear demonstration of the downturn in the Japanese market but more importantly a change in attitude from the Japanese buyers whereby project vessels were released for third party business. The real significance of this action may well be manifested in the forthcoming years, especially if we see a further relaxation in the Japanese normal conservative philosophy that guaranteed supply takes precedence over price, and they too play the market with the various projects which have excess capacity at their disposal.

A new player arrived in the LNG short term market when Edison Gas bought 11 cargoes for delivery to the Italian terminal at Panagaglia. Edison chartered the new SNAM vessel , "LNG Lerici", for these cargoes which should see the vessel employed through to August 1998. This is evidently good business for both Edison and SNAM, the latter no doubt being very happy with the deal as it is able to operate both their vessel and terminal which would otherwise be experiencing a quiet period before the NLNG swap deal commences at the end of 1999 (see BRS 1998 report).

Botas in Turkey continues to play the short term market, having been successful at the beginning of 1998 in securing eight cargoes from Qatar at a price reported to be $2.48 mmBtu, which represented a significant saving on their long term Algerian contract cargoes. A repeat exercise took place in October 1998, but not such a success due to a lack of available shipping. Their tender only attracted one response from Adgas and whilst Botas was seeking five cargoes, Adgas was only able to offer three, once again on their project vessels. In the event, Botas was able to secure the requisite five cargoes though not from Adgas but instead from Algeria. (We do not have any further details on this deal at the time of going to press).

Cabot LNG, a traditional player in the short term contracts suffered a setback in 1998 when they ran into shipping difficulties. Having secured the shipping services of the "Asake Maru", renamed "Mystic Lady", with a six month charter with an option for a further 9.5 years, the vessel was subsequently found to have cargo tank defects (see later comments in the LNG fleet). In consequence of these problems Cabot was unable to lift a September cargo from Australia.

The Asian financial crisis has dampened enthusiasm for new long term purchase contracts and has resulted in postponements for the three main plants seeking expansion notably MLNG Tiga, Indonesia and North West Shelf. New grass roots projects such as Gorgon, Yemen and Tangguh have also suffered similar fates.

In Europe, the same market has a somewhat different future, with Nigerian LNG actively pursuing plant expansion. The NLNG CEO, Mr. Steve Ollerearnshaw, recently announced that he expects the FID (Financial Investment Decision) to be taken as early as 27 January 1999. The potential buyers are being kept a secret, but we anticipate that their clients will be the existing buyers from the first two trains (Enagas, Transgas, Gaz de France and Botas, but not Enel) plus possible new buyers in Israel or Brazil.

Enagas would appear to be on the verge of buying more gas from Atlantic LNG, should the partners in that project decide to press ahead with plant expansion. However, we understand that there is some disagreement amongst these partners and whilst a firm decision was expected before end 1998, no new date has been offered.

In the Middle East, we have seen how a geographical advantage has been influential in securing market share in the new LNG "El Dorado" of India.

Mobil has been successful in securing the supply contract of 7.5 million tons per year for two new LNG receiving terminals in Gujarat and Dahej. Mobil is looking to advance the start up date for Gujarat by utilizing one of its new concepts of a regasification unit aboard two existing LNG vessels from the Osprey fleet (at least their model of the concept shows an Osprey vessel!).

Enron have also been successful in securing a supply of 1.5 million tons per year from Oman LNG for their proposed receiving terminal at Dabhol. Enron have still to close the financial arrangements for this project, having suffered a setback after the US government imposed sanctions on India investment following India’s nuclear test programme. However, Enron are confident that their financing will be secured by the end of the first quarter 1999.

In South East Asia, we have seen MLNG Tiga remaining very pessimistic about plant expansion, with 2005 being discussed as the earliest date but only for a single train. North West Shelf has similarly downgraded its expansion plans to a single train and they too are considering a new date possibly 2004.

In Australia, with a re-assessment of their potential markets, notably Japan and Korea, a single train expansion is most likely for the North West Shelf (NWS) partners, but realistically not before 2004. What shipping requirements this will generate is yet unknown, as there is a strong chance that the project may consider utilization of existing vessels. A 2004 start-up would coincide with some shipping being freed up from the Arun project in Indonesia which will be approaching the end of its production, and as the Japanese market is sought, keen pricing with available existing Japanese ships could prove crucial to any sales contract.

In Malaysia, as with North West Shelf in Australia, it looks as if a single train expansion in 2005 is the most likely outcome given the depressed Asia market. MLNG Tiga is in direct competition with NWS for the Japanese and Korean markets. If expansion is delayed by three years (originally 2002 was anticipated) it would seem that the project will need to re-launch a tender for its new shipping needs, as it is most unlikely that the terms of its 1997 tender would remain valid until a possible order date of 2002.

Puteri Intan 130,000 cbm, blt 1994 by Chantiers de l'Atlantique, owned by Petronas Tankers

In Indonesia, although Pertamina and partners continue to find new gas reserves, moneti sing this gas is proving difficult. Political changes coupled with low crude prices are complicating production plans, especially in the very competitive Asian market.

In Japan, we have seen the first indications that the LNG market share is under threat from alternative fuels. Figures produced by MITI (Ministry of International Trade and Industry) and IEE suggest that growth will be about 2% for LNG, with reduced importance for power generation with the Japanese power producers favouring nuclear and coal fixed stations.

In Korea, subject to privatisation plans to be implemented by the Korean government, we could see a decision for the first private import facility being taken by the end of the second quarter 1999. A new terminal is expected to be built in South East Korea, near Pusan. Both Kogas and Posco have plans to build terminals at 40 and 80 kilometres respectively, south west of Pusan. Posco have already secured financing for their terminal, which is expected to import about 1.2 million tons per year from 2002, from Mitsubishi Corporation on a ten year bot agreement and should therefore be viewed as the favourite to succeed.

However, Kogas is probably reluctant to concede its position as sole importer of LNG without offering some strong opposition.

In Oman, construction continues with their new plant with first deliveries expected early 2000. Having signed the sales agreement with Enron all name plate capacity (6.6 million tons pa) has been sold.

In Qatar, their two projects Qatargas and Rasgas would appear to have a surplus of 4.0 million tons at their disposal. Such excess capacity could well be an important issue for short term, or ‘spot’ sales, in 1999 and 2000.

In Yemen, it would appear that British Gas could be its first firm buyer with the Indian market as a potential outlet. Turkey continues to be an interested customer, but Botas seeks participation in the upstream and/or plant which we believe the project partners are unwilling to concede at this time.

In Egypt, LNG is back on the agenda with Amoco and SNAM studying the possibility of a new plant. Italy and Turkey, with potentially Israel, are the expected markets.

In Greece, the long awaited receiving terminal at Revithoussa should be completed by June 1999. The small vessel, "Century" should commence delivery from Algeria, for the account of Depa, at this time having secured a five year time charter (plus options).

In Spain, there is intense activity for the Bilbao receiving terminal and associated power plant. There has been intense lobbying in this region and it looks as if a Spanish shipyard could enter the elite club of shipyards (currently 13) constructing LNG carriers. The gas for Bilbao should originate from the Atlantic LNG expansion, where Repsol has a significant shareholding (Repsol will also have 25% in the Bilbao operation, alongside Amoco, who also has a shareholding in Atlantic LNG).

In Nigeria, construction of the new two train plant is almost completed with first gas delivery expected during the fourth quarter 1999, i.e. on schedule. Plant expansion is also on the agenda, with a firm decision expected by the end of January 1999. Whilst market condition will dictate any of such decision, environmental pressure on the project partners to reduce gas flaring in Nigeria will play a major role in plant expansion as creation of a third train will use a larger percentage of associated gas which should reduce flaring by about 60%.

In Brazil, Shell has signed an agreement with Petrobras to develop a receiving terminal South of Recife, at Suape, with an IPP as intended usage. Shell has 12 months to produce some realistic proposals. Nigeria LNG is seen as a potential supplier but they will no doubt face competition from Atlantic LNG.

The world fleet of LNG carriers at end 1998 consisted of 108 vessels although this could be reduced to 107 early in 1999. The total capacity is 11,752,549 cbm, comprising of:

During 1998, one small, one medium and three large vessels were delivered:

One vessel looks doomed for scrapping following the findings of a life extension study which was carried out during the summer. The "Asake Maru", 87,600 cbm built at Moss Rosenberg in 1974, renamed "Mystic Lady", was destined for 10 years employment to Cabot LNG. Unfortunately, cracks where found in all cargo tanks on the welded seams and MOL (Mitsui OSK Lines) has withdrawn the vessel from service. The vessel will be scrapped but may be used for spare parts for the "Norman Lady" (sistership) which is operated by Leif Hoegh. This latter vessel has also been subjected to an extensive survey, and whilst some cracking has been found, the problem is not as intense as the "Asake Maru". The repairs on the tanks should be completed before the vessel enters long term service for Trinidad to Spain in September 1999.

No ships were ordered in 1998, but 1999 could see one ship ordered from Brunei, up to two for Nigeria LNG, one for Enron and possibly two for Spain, all looking for delivery in 2002.

There is much speculation about the Korean vessels destined for Kogas fob purchases. One vessel is yet to be started at the Samsung yard, and is therefore at least 12 months behind schedule. This Samsung vessel, and the last vessel on order at Hyundai Heavy Industries (HHI), had not secured financing prior to the Asian crash. Whilst HHI continue to build their vessel which was ordered by its sister company Hyundai Merchant Marine (HMM), Samsung has not progressed their vessel. Reports from Korea suggest that financing for the Samsung should be finalised in early 1999 and that HMM will settle their account with HHI by the end of 1999.

However, whether or not Kogas will use all of their new vessels is the real cause for the speculation on availability of these vessels for other projects’ needs. Certainly 1998 has seen a steady stream of interested customers visiting Seoul. Original terms of the Kogas tender and subsequent COA’s would suggest that it will not be easy for foreign owners to pick up these vessels, but this does not deter interest. Certainly, the two exporters Qatar and Oman are keeping a close eye on Korean events as their sales contracts quantities require full utilisation of all the vessels which should have been ordered. Any shortfall in the Korean fleet would immediately impact on the volumes to be delivered to Inchon and Pyeong Taek.

1999 will see seven of the "existing" vessels enter into service with Nigeria LNG, and the "Matthew" taking up its long awaited employment for Cabot LNG. This situation will leave Osprey Maritime as the only contender with non-project dedicated vessels (two) available for short term employment. With these vessels apparently committed to Cabot LNG, there will surely be a fleet restriction for short term trading, unless more projects follow Abu Dhabi’s lead and release project vessels for spot sales.

The "old lady", the "Cinderella", continues to perform well on its current trade to Spain. What the future holds beyond 2000 awaits to be seen but potential customers could be those small IPPs who only need small LNG parcels - India and China take note!

It has been normal practice to report a continued growth for this rather specialised business. Established LNG players and other interested parties now find themselves in the unusual position of having to completely reassess their predictions. Because of this situation we have refrained from producing figures in this report as they would not offer any significant information for our readers.

The industry has been under pressure over the past five years to reduce the costs of plants and every element in the LNG chain. Shipping was also under scrutiny and newbuilding prices are currently at their lowest for over ten years. However, there is increased pressure for reduced costs for LNG and strong warnings are coming from Japan and Korea, that the price of LNG needs to be much more competitive with alternative fuels. We are now perhaps at a major cross-roads in this industry whereby the manner in which the traditional LNG business has been conducted will not be acceptable in the future.

It would appear that buyers will demand more flexibility and this could produce fob contracts in preference to cif deals, but of a shorter duration i.e. not 20 year deals. Such a move will make grass root project financing somewhat difficult, but this is not a concern for the buyers.

Shipping supply will clearly play an important role in the forthcoming years if the industry is to progress into a true spot business. With shipyard prices at their current levels, there is little economic advantage to projects looking at existing vessels, should there be any available.

With this in mind, we could be close to seeing a speculative ship being ordered in 1999 for spot trade development, but always with the long term prospect of securing project employment 2005 onwards. The question is who will do it and in which month in 1999.