Rising to the challenge: the evolving LNG shipping market technology

Download PDF

The LNG shipping market and the technologies associated with it are evolving, offering traders a greater ability to capture optionality and arbitrage opportunities.

The global LNG shipping fleet plays a vital role in the evolution of the LNG industry by allowing market participants to capture optionality and arbitrage opportunities, the cornerstones of commoditization. In the next decade, the commercial and technological aspects of LNG shipping will develop further to make LNG trading more flexible.

The availability of LNG carriers on the spot market has been rising in recent years, and when spot rates teased the $200,000/day mark in 2018, it triggered renewed interest in shipowners to make speculative LNG vessel orders not linked to long-term supply contracts.

LNG newbuilds are seeing shorter time-charters of around seven years compared with up to 15 years previously, according to shipbrokers. A couple of decades ago, LNG carriers would not be built unless tied to specific projects.

According to the International Gas Union, only around 52% of the orderbook was tied to a specific project or charterer at the end of 2018, leaving 56 carriers available for the spot market or to be chartered out on term business.

When LNG spot rates were languishing at under $25,000/day in 2017, as much as 15% of the global LNG fleet was laid up, more than most shipping segments, as day rates were below the break-even level. An increase in day rates has pulled most of these LNG carriers back into the spot market.

Additionally, the large number of LNG carriers rolling off long-term contracts between 2020 and 2030 will be prime candidates for spot trades — if day rates are attractive — before they get scrapped due to old propulsion systems.

DNB Bank estimates that cumulative long-term contracts rolling off could reach 36% by 2025.

Ownership fragments, diversifies

Even LNG vessel ownership structures are changing fundamentally. New fleet owners range from Greek investors diversifying into LNG to oil majors, portfolio players and trading houses controlling more LNG tankers for trading purposes.

Data company VesselsValue estimates that Greek shipowners now own the highest valued LNG fleet in the world, worth $18.4 billion by 2019, up from $13 billion at the start of 2018, putting them ahead of Japanese shipowners, whose fleet value of $15.2 billion was largely dedicated to project commitments.

These Greek shipowners include Marinakis Group, Minerva Maritime, TMS Cardiff, Alpha Gas and Thenamaris.

South Korea’s Sinokor dominates the second-hand LNG carrier market, mostly for steam turbine vessels, and is among the top LNG fleet owners, while US LNG producer Cheniere has emerged as one of the largest LNG vessel charterers with as many as 25 ships on the water at the same time, according to company presentations.

Oil majors, portfolio players and commodity traders have become some of the most active short-term charterers of LNG vessels. For instance, Shell Trading & Shipping controlled nearly 52 LNG carriers between its time-chartered fleet, full-owned and partly owned vessels, accounting for nearly 10% of the current global fleet, VesselsValue data shows.

Download the PDF to read the article in full

Read the full report here