33 LNG Ships Ordered This Year. But Is There Room for More?

Thirty-three new liquefied natural gas (LNG) vessels have been ordered so far this year, compared to 19 last year and just six in 2016, according to the data from global natural resources consultancy Wood Mackenzie.

Owners have been tempted by higher spot/short-term charter rates, low newbuilding prices and rapidly growing LNG trade.

“Owners need to be careful they don’t over order. There is still a huge number of ships ordered in the 2011-2014 LNG newbuilding boom to be delivered to the fleet and there is a long history of new ships arriving before new supply,” Andrew Buckland, principal analyst, LNG shipping and trade, at global natural resources consultancy Wood Mackenzie, said.

“LNG shipping is benefiting from an unprecedented wave of new LNG supply projects coming on stream in a relatively short period. Between 2015 and 2020 LNG production is forecast to increase by over 150 million tonnes per annum (tpa). In comparison, supply rose by just 20 million tpa in the five year prior to 2016.”

For LNG shipping, this supply boom is particularly beneficial, as much of it is coming from the US Gulf which is a long way from the largest LNG markets in north-east Asia, the consultancy said.

 “To move 1 million tpa of LNG from the US Gulf to Japan requires 1.9 ships, compared to 0.7 to move the same amount of LNG from an Australian project.”

 “The huge increase in LNG supply has so far been comfortably absorbed by rapid growth in demand. China has been at the forefront of demand growth with imports in the first half of 2018 up 50%, following 46% growth in 2017,” Buckland explained.

Wood Mackenzie expects that that 114 million tpa of new LNG capacity will take FID between 2018 and 2021.

As explained, these pre-FID projects will not provide any new LNG to the market until at least 2023 and most of it is unlikely to be available to ship before 2025. Between the current wave of new LNG supply and the anticipated pre-FID wave there will be a period of low LNG supply growth. Ships being ordered now will deliver just in time for the start of the period of low supply growth.

 “In real terms newbuilding prices for LNG ships have never been lower. Elsewhere in the shipping industry newbuilding prices have begun to creep up and prices for LNG ships will eventually follow the trend,” Buckland said.

“Ship orders now are typically sized at 170-180,000m³, compared to 155,000m³, dues to design advances and to maximise carrying capacity through the newly expanded Panama Canal. In addition, the introduction of gas-injection slow-speed engines has offered fuel savings of over 20 tonnes per day even against modern DFDE/TFDE engines and 75 tonnes per day against older steam ships.”

So far this year 36 new vessels have been added to the fleet and three have been scrapped. A further 22 are scheduled for delivery before the end of the year, increasing capacity  by 13.0% in 2018 (up from 6.8% in 2017). The 37 vessels currently scheduled for delivery in 2019 will grow the fleet another 7.6%.

“LNG trade is growing strongly but our forecast of an 8.2% expansion in 2018 lags behind fleet capacity growth. More long-haul imports from the USA to Asia should see tonne-mile demand grow at a faster rate, leaving a delicate balance between supply and demand for LNG ships. But forecast trade growth of 13.7% in 2019 should tip the balance in favour of ship owners,” Buckland added.