INTERVIEW: Teekay in LNG expansion mode

Teekay LNG, one of the world’s largest owners and operators of liquefied natural gas carriers, providing LNG, LPG and crude oil marine transportation services primarily under long-term fixed rate charter contracts, has been growing steadily in the last years ordering new vessels and posting positive results.

The company has interests in 48 LNG carriers, including one LNG regasification unit and 19 newbuildings, which is more than 10 percent of the existing global LNG carrier fleet, or on order. In addition, they have ownership interests in a large LPG fleet as well as crude oil tankers.

In an interview with LNG World News, David Glendinning, President, Teekay Gas Services – the business lead for Teekay LNG Partners (TGP) – speaks about the company’s fleet, market fluctuations, as well as Teekay LNG’s plans for the future.

Recently, Teekay LNG held a keel-laying ceremony for the Creole Spirit – the first of the nine LNG vessels with the M-type, Electronically Controlled, Gas Injection (MEGI) engine technology, which will operate on a fixed-rate charter contract with Cheniere Energy exporting LNG primarily from Cheniere’s Sabine Pass LNG liquefaction facility in Louisiana.

These engines are designed to be significantly more fuel-efficient and have lower emission levels than engines currently used in LNG shipping.

Since IMO’s rules regarding Nox and Sox emissions took effect in January this year, a lot of shipowners decided to switch their fleet to run on gas.

What is your opinion on this, what are your expectations of LNG as a fuel for ships?

“It will, of course, remain the obvious fuel choice for LNG carriers. And because LNG is the cleanest burning fossil fuel, I think we’ll continue to see some gradual adoption of LNG fuel in other vessel segments.”

With a recent deal with Shell for five MEGI LNG carriers, Teekay exercised its options for additional vessels with DSME.

Do you see the trend continuing? Is the company looking to bring in more fuel-efficient vessels into its fleet?

“Shell’s support further validates our innovative MEGI LNG newbuilding design and Shell will be among the first of the energy majors to bring MEGI vessels into its fleet. These MEGI engines used in our vessels will be significantly more fuel-efficient and have lower emission levels than other engines currently used in LNG shipping. This is a direct benefit to our customers, and we’re continuing to investigate new technologies to further increase the efficiency of our newbuild designs.

With two currently unchartered LNG carriers delivering in 2017 and 2018 and four options with Daewoo Shipbuilding in South Korea to order up to four additional MEGI LNG carriers, Teekay LNG expects to continue steadily expanding its fleet of modern fuel-efficient vessels.”

Oil prices halved during the last year prompting shipowners to rethink their decisions to switch to natural gas as fuel.

Do you see this as a big obstacle since the consequences are already being felt?

“Fuel still isn’t free. When you’re building a ship to operate for 30 years or more, the focus on efficiency is more important that the short-term swings in fuel prices.”

Spot LNG prices have also dropped significantly, how do you see the rates in 2015, will they improve?

“Given the current weakness in the global energy markets, let’s just say that we like to highlight that with the exception of one 52% owned vessel, our entire LNG fleet is employed on long-term fixed rate charter contracts. As a result, we have minimal near-term exposure to the weak LNG shipping spot market.”

The development of shale gas in the U.S. for export purposes has changed a lot in the LNG perspective; Teekay LNG will also be involved via its contract with Cheniere to export LNG from the Sabine Pass liquefaction terminal.

Do you see Teekay getting orders from LNG players to ship the chilled gas onboard the company’s vessels overseas?

“The LNG industry will be experiencing a strong growth phase due to all the new liquefaction capacity coming online by 2020. We have 19 newbuild LNG vessels on order, of which 17 are secured on long-term charters, and by our estimate, another 110 LNG vessels will need to be ordered by 2020 in order to accommodate the growth of LNG trade.

With a solid operating track record, a steadily expanding fleet of modern fuel-efficient vessels and a strong financial foundation, Teekay LNG is well-positioned to secure future growth.”

What is your point of view regarding the U.S. LNG exports? We are talking about a huge quantity of gas to be shipped overseas, how it will affect the global LNG industry?

“We anticipated the growth of US LNG exports, which is why we designed our newest generation of MEGI LNG carriers. In addition to being the most fuel-efficient vessels, these vessels will be among the largest LNG carriers that will be able to transit the expanded Panama Canal, which makes them ideal for US exports.  

Overall the growth of the US exports is good for the LNG industry – it provides a new region of LNG supply which can expand to meet the long-term growing demand for LNG in the world.”

With the melting of sea ice due to global warming effects, the Arctic Ocean route, the shortest shipping route linking Europe and Asia, has opened up in the past few years.

Teekay LNG has, in a joint venture with China LNG Shipping, six vessels on order for the Yamal LNG project in the Arctic, which is sponsored by Novatek, Total and China National Petroleum Corporation.

Do you see this route as a turning point for the industry in the future?

“Commercial vessels have been transiting the Northern Sea Route since the early 1900s so shipping in the region is nothing new. That said, there are a number of unique challenges to operating in the Arctic besides just the challenges of ice navigation, including limited daylight hours, navigational system impacts due to the high latitude and general access to the region given the limited development. 

Our six ARC-7 ice-class LNG vessels have been specially designed to operate in this region where conditions remain too harsh for conventional LNG ships.”

What will be the focus of Teekay LNG Partners in the future?

“In 2004 Teekay LNG owned zero gas vessels. A decade later, we have ownership interests in over 80 vessels and have become one of the world’s largest independent owners and operators of LNG carriers.

Going forward, we remain focused on our strength, which is building a stable business of long-term contracts by offering the best ships and operations to our customers.”

LNG World News Staff