Fernando Tapias 
140 500 m3, livr' en 2002 par Daewoo, propri't' de Tapias F. Naviera.

Gaz de France broke the traditional mould in 2002 when the first diesel-electric propulsion ship was ordered from Chantiers de l'Atlantique. This 74,000 cbm vessel is due for delivery in end 2004. However, not only was a new propulsion system selected, a new type of membrane containment system will also be used. This CS1 system, a hybrid of the two existing membrane technologies GT96 and TGZIII, offers significant cost savings for the builder and optimises cargo capacity for the owner / charterer.

In light of the diesel-electric order there has been a surge in interest expressed in what is alternative propulsion to the steam turbines. This is partly due to the change in the LNG trade, where the emergence of a spot market demands the maximum amount of cargo is delivered to the customer (not usually the case in the traditional annual delivery concept) but also the recent troubles associated with gearboxes on some recently built turbine ships.

Gas turbine manufacturers have also turned their attention to LNG in the wake of a downturn in aircraft orders. Once thought extremely expensive it would now appear that market conditions have seen a more sensible approach to pricing.
 

Whilst LNG newbuilding prices had generally been on the increase, but nowhere near the previous highs, the competitive market would seem to have returned with yards, especially the Korean shipyards, seeking new LNG orders. There are at present two tenders for new tonnage on the market and it will be interesting to see at what level the bids are set.

The graph shows the trend of pricing, with a comparison to VLCC prices, over recent years.

The yards are in general seeking orders for all shipping and those that specialise in LNG also build other types of ships. However, those orders are also drying up but a knee-jerk reaction in the aftermath of the 'Prestige' could see this change. A recently reported price war between two Korean yards seeking to secure an order for containerships could see this translate into the LNG market. There are already rumours of prices falling to the level set some three years ago when the Spanish orders were placed.

Will the E.U. relaxation on yard subsidies increase price competition? Will inventive tax incentives continue within Europe? If the answers to these questions are yes, then ships prices will remain low for the foreseeable future.
 

• New Projects

The Norwegian project, Snohvit, finally received the final go ahead but not without opposition. Between the EU Council in Brussels and the environmentalists in Norway the pressure was very much against the project. However, in the end common sense prevailed and the project was eventually given the 'green light' in June. Some of the project partners were also instrumental in changing the future of LNG when TotalFinaElf and GdF elected to take their equity gas as fob cargoes using their own ships.

Angola did not make the progress anticipated, but although no progress was made in 2002 there should be some good news by the end of 2003. There has been a recent development in the Angola LNG project that may see an advance in the start-up date. Whilst the project was restructured earlier in the year with a new partnership agreement following the end of the civil war (which enabled a change in site location at least) and the Chevron / Texaco merger, that resulted in some slip in the original schedule, the Angolan government is taking a stand. They have slowed the pace of approvals for deep-water oil projects to synchronise with a 2007 launch of the LNG project, which could be interpreted as no LNG, no oil ! The real concern in Angola is the reduction of gas flaring which at present stands at about 85 % of its gas, and any increase in oil production would naturally increase the flaring. Political sensitivities could also be influential where the United-States are looking for diversification away from the dependency on the Middle East and thus investment in the African continent may be a necessity of Washington rather than the oil companies.

There is continued discussions on Iran LNG from the South Pars field, but given continued threat of hostilities in that region there will be continued uncertainty on this project. Furthermore investment in 'green field sites' is always the most difficult aspect of a project when the long-term buyers are no longer there. The main competition for Iran is the existing LNG operations in Qatar which appear to have the ability to expand at very short notice. The infrastructure at Ras Laffan will always give Qatar a commercial lead against a new project that will be stretched for capital investment.

The same problems exist in Yemen as for Iran, except that the threat of terrorism is more real in that region. LNG projects require huge investment and financial institutions will always assess the risk to their investment, always choosing the least risk. Thus allocating funds to Qatar or Oman expansions, for example, is always easier than start-up projects in sensitive political arenas.

Egypt is finally realising the ambition of being an important LNG player with the final agreement for its second LNG project. GdF signed an agreement to purchase the entire output from the first train of the BG led consortium and now BG is actively pushing for expansion of the second train, which is now expected in early 2006.

There is however greater emphasis on African projects, apart from Angola and Nigeria LNG, as the USA seeks non-Arab sourced hydrocarbons. There is at least one more Nigerian project at the planning stage and another in Equatorial Guinea. Both of these projects will be seeking the 'Americas' market.

• Expansion Projects

The main activity in the increase in LNG production capacity involves expansion schemes in existing LNG plants. We have seen Nigeria LNG, Atlantic LNG, Qatargas and RasGas, Australia LNG and MLNG all develop expansion schemes.

Financing is always the key to a successful project and that typically requires firm long term contracts from gas buyers. Unfortunately, some of the new gas buyers are not in a position to guarantee their off-take quantities, Dabhol and Petronet in India being prime examples, and so new projects seeking similar markets struggle to attract finance, unlike those existing plants who already have significant cash flows.

The US market remains the biggest potential target for future LNG growth. Domestic supply of gas is diminishing whilst long term demand, from the power sector, continues to grow. With only four existing terminals there is a finite capacity of about 16 million tonnes with a further 12.3 million tonnes expansion planned, and all on the East coast.

There are several projects for new terminals in the Baha peninsula of Mexico plus two for the Gulf of Mexico but now there is the likelihood of a new terminal in northern California, a concept many thought impossible not long ago. The regional demand is highest in California but the slim prospect of siting a terminal there caused the rush for the Baha peninsula. However, it now seems that reality has beaten off unjustified fear and the move is on to build a Californian terminal. We should know more on this by the end of 2003.

The Bahamas is another favoured location to site a receiving terminal, Tractebel having bought the old Enron site in the West, with El Paso holding onto its proposed site, in the East, for the moment. The advantage of the Bahamas is the proximity to the Florida market.

Despite new security measures having been introduced to the Boston harbour where Tractebel's Everett terminal is located, LNG is expected to continue to be imported into the New England area. Whether this would continue should Irvine's new proposed terminal for Nova Scotia get approval is still unknown. The continued threats of terrorist attacks hold a cloud over the continuance of the Everett terminal, which is close to Boston city centre and at the end of Logan Airport runway. Not that LNG offers any greater danger to the city compared to LPG, oil or chemical carriers.

The long-awaited re-opening of the Cove Point terminal should occur in the third quarter of 2003. New owners, Dominion Energy, having acquired the terminal from Williams, have three customers BP, Shell and the new user Statoil who recently purchased El Paso's capacity at this terminal, along with its SPA from Snohvit.

With the forecast for U.S. gas prices around the $4.00 per mmbtu, the U.S. market should continue to be the stimulus for many LNG projects and if the West coast terminals come into existence then the Asian producers should also become involved in this market, rather than just the Middle East and African producers.

There would also seem to be the prospect of more new terminals on the East coast of the U.S. with Federal Energy Regulatory Commission (FERC) apparently relaxing the tight reins on approval of new sites.
  

We have previously referred to the fleet age profile, old-ship disasters and the arrival of alternative propulsion. Larger size vessels, of up to 200,000 cbm, are under consideration by ExxonMobil and TotalFinaElf for their new proposed long-haul trades from Qatar whilst 145,000 cbm would appear to be the optimum size for new orders today. The 145,000 cbm size is more or less the maximum size acceptable to all existing terminals and as flexibility is very much the key focus on modern LNG trade any increase in this size is not expected in the near future, unless the new CS1 containment system gains wider use. The main advantage of the CS1 is the increase in cargo capacity for no change in external dimensions of the vessel.

As for the age profile, we would seriously question the industry's love affair with old tonnage when the rest of the shipping industry is looking carefully at the age of ships. Furthermore, with increased efficiency of the modern tonnage and the possibility of wider use of electric propulsion coupled with relatively low new ship prices, the case for fleet renewal should be given wider consideration.
  

LNG shipping will continue to grab headlines in the near future, hopefully for good reasons rather than adverse incidents such as the 'Norman Lady' accident with a U.S. submarine. The fleet size is growing at a rate previously unheard of and with 137 active and 56 on order the magical figure of 200 ships should be reached by 2007. As the new chosen preferred fuel for the future, the growth in LNG trade should continue and with it the LNG shipping industry.

Evolution cannot be ignored and for LNG this will be shorter charter periods, more flexible trading routes with less 'tram-line' operations. There should be progression towards alternative propulsion away from the very high fuel consumption represented by steam turbines, and this may be hastened after the delivery of the Gaz de France 74,000 cbm in 2 years time that will be fitted with a diesel-electric engine. It will be worth noting the pioneer's effect this new technology will have on the market.

New ship prices are expected to remain about the present level and stay there for the future with the anticipated arrival of the Chinese yards entering the 'club' in 2006. It should not be forgotten that it was the emergence of the new 'members' in Korea that assisted in the fall of LNG prices in the mid'90's.