LNG shipping market in 2004
What is there for 2005?
LNG Shipping has become one of the most active sectors
in shipping with unparalleled new orders, forecast
growth expected to continue, at least 19 speculative
orders, new owners entering the "Club" along
with increased sizes and the possible demise of the
steam turbine. And all of this has occurred in 2004!
At the end of 2003 there were 152 LNG vessels in
service with a further 34 on order, the largest of
which was 153,500 cbm capacity. RasGas II had a tender
for up to 8 ships with market talk of about another 47
ships needed with the likelihood that we would see
200,000 cbm and larger vessels ordered.
At the end of 2004 there were 174 ships in service with
113 ships on order, but let us look at these figures in
- Korean shipyards control over 75 % of the new
- GTT membrane designs account for 82 % of the
- 16 ships on order are not steam turbine and 2 of
them are purely speculative,
- 8 ships are over 209,000 cbm fitted with
- China finally signed their long awaited order for
2 new ships,
- 1 new Korean yard (Samho) has gained an order just
a few weeks after a new Japanese yard (Imabari)
enters the Club,
- One recent LNG entrant has been bought out by an
even newer entrant,
- Two new Russian LNG owners have joined,
- 4 newcomers have won the sought after (but non
lucrative?) Qatar orders,
- Yard prices have risen as steel prices have
increased and yard slots have disappeared,
- Greek shipowners have 8 ships on order, 4 of which
- Charter rates and periods are falling: 2 new
orders fixed against 10 year charters,
- 2 new orders have been placed at Universal for
75,000 cbm ships for Mediterranean trade.
However we must stress that, among all types of
ships, LNG carriers are the ones that have recorded the
smallest rise in newbuilding prices, due to a fierce
competition among shipyards in this sector. Shipyard's
strategy has also diverged among the LNG builders:
Daewoo and Samsung have invested in the construction
of series of ships, Hanjin has decided not to take LNG
orders any more and Hyundai has chosen to concentrate
on "standard" ships as prices for the latter
have risen more sharply and account for less cgt
(compensated gross tons) than their LNG counterparts.
Of the 113 ships on order at end 2004, 69 have been
placed this year which in some respects follows the old
school of LNG (circa early 1980's) where projects and
Japanese buyers prefer to order rather than
charter ships that are available or are already on
speculative order - 19 ships on order are unfixed with
4 existing new ships sitting idle.
Ever since the company has been involved in LNG
shipping, the standard line used by banks and projects
has been "No new or unproven technology and we
will not be first of a class": this probably
accounts for no new developments in nearly 40 years!
However, in the space of 12 months we have seen the
size rise from 145,000 cbm in January to 154,000 cbm in
August and to 216,000 cbm in November.
Likewise, the need for the reliable steam turbine
engine was an absolute must, with much scepticism
voiced at the innovative French companies of Gaz de
France and Chantiers de l'Atlantique for building dual
fuelled diesel electric (hereafter DFDE) vessels, but
that was until November when it would seem that
several parties threw caution to the wind when first BP
ordered 4 DFDE ships, swiftly followed by AP Moller
ordering 2 similar vessels. However, these owners were
clearly outdone by Qatar, aided by ExxonMobil, who
confirmed their long awaited selection by allocating 8
new 200,000 cbm plus vessels with slow speed diesel
engines equipped with re-liquefaction plants
The year started with almost historically low LNG
shipyard prices, but it closed with prices having risen
by over $ 30 million per unit.
Twenty years charter hire period was the usual
duration for the shipping contracts, twenty years
matching the SPA (sales and purchase agreement).
However, the long term would appear to be stretching
out to 25 years with short term settling around 3-5
years, with the exception of the occasional spot
fixture of which the year's low was reported to be $ 25,000
per day. This is a strange phenomenon when VLCC's
were fixing at $ 260,000 per day, yet there is a rush
of tanker owners wanting to get into LNG. Does the new
world LNG need some explanation to the new entrants?
The tonne-miles demand for LNG is increasing as the
Atlantic Basin and West Coast US source the gas from
further afield. The increased distance inflates the
transportation costs that would naturally reduce the
net revenue for the LNG producer if the end market
could not absorb a higher price for the transportation.
The transport costs can be reduced by increasing the
amount of cargo carried, and hence delivered, on each
ship, reducing the fuel costs and keeping the daily
hire rate as low as possible.
The Qatar projects of RasGas II and Qatargas II have
clearly been the most successful projects in reducing
transport costs, as they have managed to combine all
three of the above elements. New entrants would appear
to have been the most co-operative with the Qatar
shareholders, as they have secured 15 of the 16
contracts awarded in 2004. So, was there a price to
enter the hallowed "Club"?
And what is there for 2005?
2004 has been a phenomenal year for LNG shipping and
it would be impossible to repeat this in 2005. However
the Qatari projects will continue to expand, likewise
Nigeria. New projects will be agreed in Brass River,
Angola, Yemen, Iran, Libya and Australia that should
produce in total a requirement for about a further 70
ships. If the fashion for non steam turbine continues,
there could be some obsolescence of the older, smaller,
thirsty tonnage that could promote some more orders but
only if there are the slots available.
No doubt ever more new entrants will arrive,
especially if Qatar and ExxonMobil continue with their
selection criteria - cheapest wins.
Ship prices may peak but stability in steel prices
and exchange rates will be needed.
Technological innovations have apparently been
accepted so there may be a new containment system
developed to compete with the membrane design and
perhaps another new propulsion system will be ordered:
Shell is rumoured to be seriously looking at a gas
turbine design. The standard ships design should rise
to 163,000 cbm as this is the optimal size to access
most of the existing terminals, as opposed to the
dedicated terminals required for the 216,000 cbm size.
Shipping and Shipbuilding Markets in 2004
I N D E X