A new millennium arrived and a new era in LNG began.
As a company that depends on shipping for its livelihood we do have a
natural bias towards shipping and, for this, we make no apology, but the
year 2000 saw the LNG industry recognition that LNG shipping is the most
important tool in the modern LNG industry. Let us not forget that the
only reason that US$ 4 billion are invested in liquefaction plants, is
to facilitate the transportation of methane by sea.
Our final comment in our review last year recommended
the move to build speculation ships. It happened that two first class
owners, Bergesen and Exmar, did just that: we thank them for such a
move. The fact that two independent shipowners (i.e. non
project-related) made these decisions, is a clear indication that this
industry is changing.
We have long
advocated that flexibility is the keyword for LNG in the modern world.
Deregulation in the various energy sectors that produces immense
competition has attracted new players. These new players however, are
energy traders who like to trade, but this word "trade" has
not really existed in the traditional LNG dictionary. Trading demands
flexibility: flexibility in quantity, timing, destination, client, and
shipping. LNG shipping also needs a flexible approach and, for this, we
mean departure from the attitude that LNG is synonym of high risk.
Perhaps it was a little risky in its infancy (every new idea is), but at
the young age of 35 it is no longer a baby and certainly not high risk.
In today's energy sector, gas is the sexy commodity that everybody
want to go with !
The oil price has
risen this year to US$ 35 per barrel (but has settled back to US$ 25-27)
and this rise had an impact on gas prices, as if it was linked to the
oil price. Hence the Japanese market saw its LNG price rise to a high
level of US$ five to six m.btu(1). However, the new "American"
market has seen the Henry Hub price peak at US$10, with a diurnal
variation of US$ 1. This is a market that traders yearn for but one that
LNG players (and here we include the financiers) don't understand.
We want flexibility. Pricing indicates that trading
is viable but where are the ships? Our brave shipowners, who ordered in
speculation, have subsequently secured traditional 20 years charters and
thus there was no "breaking the mould". Traders need a supply
of ships and production plants need to know that there is a supply of
ships that will arrive to lift the cargo. This scenario will sound
familiar to the oil and coal industry, who are after all the competitive
fuels in the energy sector.
There are several traditional shipowners, located in
the Mediterranean, who are taking a close look at this industry and it
is our opinion that they will not have to spend too much time on this
subject before realising the tremendous opportunities that exist. Their
main advantage will be flexibility, their experience with traders and
their ability to do what they know best: running ships.
There was one new project that started this year,
Oman LNG but no contracts were signed for proposed plants. However, we
have seen renewed activities in Iran, Yemen, Norway, Egypt, Venezuela
and Angola so that 2006 could be a very interesting year, as this is the
time when these are expected to be on stream.
Atlantic LNG (Trinidad) confirmed the next phase of
expansion with two new trains whilst North West Shelf (Australia) and
Malaysia LNG are very close to finalising their expansion programmes.
The USA will soon have four receiving terminals in
operation (by 2002) and no doubt will have expansion plans approved for
the two to be re-opened, Cove Point and Elba Island. Everett in Boston
was sold by Cabot to Tractebel, whilst Cove Point was sold to Williams
which raises the question whether Duke sold their LNG interests at Lakes
Charles too soon to CMS energy in 1999.
Europe has been attracting interest with its main
activity focused on the Iberian Peninsula. The Spanish market has been
opened up and it looks as if there will be two new terminals, one in
Bilbao and the other at El Ferrol. Portugal is constructing a new
terminal near Sines which should ultimately free up some capacity at
Huelva and this news should interest traders.
Turkey will have a second receiving terminal, in
Aliaga, ready by September 2001. But as yet there is no information on
where the LNG will come from or where the gas will be sold. This
terminal is under construction independently from Botas, the state owned
energy monopoly, and how it will be utilised is still uncertain.
However, what is clear is that the Turkish market has a need for the new
India continues to test the patience of many LNG
sellers as the year 2000 has passed without a decision on where their
second LNG terminal will be sited (Enron has the first receiving
terminal in Dabhol that should receive its first LNG in 2001).
Nigeria LNG is actively marketing sales from its next
planned expansion of trains four and five. The market in the Atlantic
Basin would clearly seem to be the most attractive one at the moment.
There is also a rumour that Nigeria may get a second LNG project (start
up +2006) that will have partners different to those involved in the
first project, most likely Exxon, Chevron and others. This second plant
will probably be located offshore.
Indonesia has had a quiet year with life basically
reverting to normal, now that Korea is once again lifting its required
quota. The price of the product has also returned to pre-1997 prices
well assisted by the rise in crude prices. TotalFinaElf continues to
seek buyers for its gas to enable a new train to be built but for the
moment there are no developments. Perhaps they are looking forward to
the idea of a new receiving terminal on the West Coast of North America
that would bring the US market into the commercial reach of South East
Qatar, with its two plants of Qatargas and Ras Gas in
full production still hopes to be the biggest LNG production plant in
the world with expansion plans in an advanced stage. No doubt the
pressure of a green field plant starting in Iran using the South Pars
field will hasten some decision making.
There were 113 ships at the end of 1999
but with 14 ships delivered in 2000 there were 127 in December 2000. The
total capacity is 13,569,049 cbm comprising of:
Six new "Moss-type" ships were added and
eight 'membrane-type', bringing the fleet distribution to 67
"Moss design" and 54 'membrane type'.
Although 2000 was a busy year for ship deliveries,
there was significant activity in ship orders. A total of 22 ships were
ordered and there are a further seven optional vessels. Perhaps what is
really interesting in this orderbook is that there were only five ships
ordered by sellers, comprising one for Nigeria LNG ordering its third
ship from Hyundai Heavy Industries and Malaysia ordering a further four.
All of the others were private shipowners or gas buyers. Tokyo Gas has
ordered two ships from Kawasaki, and Tokyo Electric one ship from
Mitsubishi. Shell and BP also entered the market with orders for two
ships each plus options for a further three each. However, the real
event of the year was the speculative orders placed by Exmar and
Bergesen (nice to know someone read our report last year!). Exmar have
since found employment of their first ship with Enron, whilst Bergesen
recently fixed their ship to Tractabel (ex. Cabot). Both of these
charters are for 20 years.
2000 saw the arrival of three new LNG owners in
Spain. Elcano, Tapias and Marpetrol / Knutsen who have ordered new ships
from a new group formed by the merger of Bazan and AESA (now re-branded
as Izar), to add to the list of 13 yards able to build LNG ships. The
first Spanish ship is due in 2003 and will be a "membrane
type" ship. The list of yards building ships is set to grow again
next year but we will have to wait to see how negotiations develop.
The not so good news (from the shipowners point of
view) for 2000 was that the wave of new orders for all types of vessels
has resulted in the ship prices rising again. The new LNG ship price hit
a floor of about US$ 143 million in March 2000, but it has now returned
to about US$ 165 million for vessels built in Korea. If prices can
stabilise around this level we should see some more ships ordered over
the next year, speculative maybe, but if 2000 is an example, anyone who
orders a firm ship does not need to wait long to find employment for it.
The 'Mystic Lady' was renamed the 'Hoegh
Galleon' and was fixed to Enron for 17 years. With this firm business
the owners embarked upon major refurbishment work on the ship and it
should have been ready by November. Unfortunately, it has been delayed
until March / April 2001 following a fire in one of the void spaces
whilst undergoing repairs in Singapore.
The Osprey ships that are under charter to British
Gas have been performing well and are under great demand. The high gas
prices in the USA have resulted in spot charter rates reaching as high
as US$ 150,000 per day, rates which must be pleasing some shareholders.
The oldest vessel in the world LNG fleet is now 35
years old (still on charter to Enagas) and there are 46 ships over 20
Well it has still not truly arrived but the number of
transactions on short term deals has increased significantly. The CMS
terminal in Lake Charles is set to have received a total of 55 cargoes
in 2000 alone. CMS, Duke, Enron and El Paso (although their first cargo
arrives Jan 1 2001) have all moved cargoes into the United-States. Coral
Energy have again been active but Gaz de France is perhaps the
surprising entity this year which has seen it moving cargoes on the 'Edouard
LD' from Qatar : this a vessel that has spent its entire life trading
between Algeria and France. In December the same vessel crossed the
Atlantic with a cargo sold to El Paso and will perform a second soon
The high gas prices in the United States have
encouraged activity in the longer hauls away from the traditional fixed
routes. However, even without the high prevailing prices the sellers are
now firmly aware that there is a good market where excess volumes can be
moved. As the other terminals in the United States open up the
opportunities to continue to move gas in that direction will improve.
Where there is volatility in the pricing we will see the energy traders
desperate to participate with LNG cargoes. At the moment we are not
aware of any gas buyer who has not onsold his LNG cargo, as soon as he
has signed the purchase contract. However, where we have seen the
volatility in the Henry Hub price, it will not be long before we see
some LNG cargoes changing hands en route. LNG does pose a problem here,
in that you never know how much cargo you will receive due to boil-off,
but this can be addressed by only trading some of the molecules and not
the entire cargo.
If the trade can develop along these lines the true
spot market will arrive, but the shipping will need to be created. Could
we have a pooled fleet offering coa-type contracts? Perhaps and we would
like to see it happen, although who will participate remains to be seen.
We are aware that some large shipowners are looking at this scenario and
we would certainly like to encourage large operators such as A P Moller
to reassess their view on LNG shipping. A real challenge would be to
convince some of the other old pioneers such as P&O and Geogas to
re-enter this arena, although their memories may be too good to take
The LNG market is truly global with cargoes moving
east and west. Australia, and Malaysia have sold cargoes into the
United-States with Oman and Qatar selling into Europe. Whether buyers
obtain full flexibility on destination is perhaps the biggest challenge
for the future, but if they do it will greatly assist the spot market
for the traders. Imagine a trader buying a cargo from Oman and taking
his ship through the Suez Canal. He can try to sell to Turkey, continue
west and tempt Greece, whilst still talking to Italy. France is the next
opportunity followed by Spain and then if still no luck in the
Mediterranean just keep checking the Nymex price in the United-States.
If successful in selling in the Mediterranean his vessel can then be
well placed to lift a cargo from Algeria or Egypt before returning to
the Middle East Gulf area.
We have been tempted to repeat our conclusion from
last year which is still valid, especially our view on speculative
ships, but that is not in keeping with the innovations in this industry.
Instead we would suggest that as the industry is
going through a transition period that will leave a permanent mark. We
believe that time is right to try and move away from the staid, and
thirsty, steam turbine technology as propulsion. Diesel electric has
been discussed for many years but now that the passenger ship industry
has embraced gas turbines the LNG industry should perhaps do likewise.
There have been brave decisions made this year with
speculative ship orders and a speculative terminal (Turkey). New players
are arriving into this industry and at least one 'old' one has
re-entered (El Paso) so that LNG is constantly hitting the headlines.
This industry should no longer be considered as
specialised but should in fact be recognised as "special" and
with this re-branding more new players will be encouraged rather than
discouraged as was the case when "specialised" was the brand
And last but not least, with a re-branding perhaps
our friends in the financial institutions will reassess the financing
risks on our speculative new gas turbine vessels, which will truly be
"special ships". LNG Shipping Solutions(2) will be the way for
the future developments in this industry.