Interview with Nakilat MD on LNG market dynamics

At the mention of Nakilat, the first thought that springs to mind are those giant Q-Max and Q-Flex LNG tankers, the royalty of the LNG shipping industry.

Nakilat’s (Qatar Gas Transport Company) current fleet stands at 63 wholly- and jointly-owned LNG carriers including 18 conventional-sized vessels. In addition, the Qatari-owned shipping company manages and operates four very large LPG carriers, which Nakilat jointly owns with Milaha (that has a 30 percent stake in Nakilat).

Nakilat’s core business is the transportation of LNG around the globe from Ras Laffan, the world’s largest LNG complex. Qatar has been the leading exporter of LNG since 2006, with a total export capacity of 77 Mtpa.

These last couple of years have not been the best for the LNG shipping industry that is just over 50 years old. Low LNG prices, low shipping rates, global vessel oversupply – tankers lying idle, etc. are just some of the problems LNG shipowners are facing these days.

However, some shipping companies have managed to successfully cope with the industry downturn mostly due to their long-term contracts.

One of them is Nakilat, the world’s leading LNG shipping firm with an estimated fleet value of about $11 billion.

LNG World News interviewed Eng. Abdullah Fadhalah Al Sulaiti, Nakilat’s Managing Director, to discuss the LNG market outlook, what kind of obstacles shipping companies are facing now and the development of LNG as fuel for ships.

First of all, thank you for accepting our invitation for an interview with LNG World News.

We will start the interview with a few sentences about Nakilat.

LNGWN: Could you please explain to our readers that are not so much familiar with Nakilat about the company’s history and strategy?

“Nakilat plays an integral role in Qatar’s LNG value chain, which is the backbone of the country’s economy. The company was established in 2004 as the shipping arm of Qatar’s LNG sector, to own, operate and maintain a fleet of gas carriers to transport Qatar’s LNG and bi-products worldwide. The company has expanded its fleet over the years to meet the demands of the State of Qatar’s gas exports globally. At present, Nakilat has the largest LNG shipping fleet in the world, comprising of 63 LNG carriers. The company also co-owns four large LPG carriers, which are operated by its in-house ship management arm, Nakilat Shipping Qatar Limited (NSQL).

Nakilat’s LNG carrier fleet is one of the youngest in the world, averaging 7 years, and is among the most modern and advanced fleets around, incorporating the use of modern technology to ensure the safe, environmentally sound and cost-effective transportation of gas. Nakilat’s LNG carriers have a combined carrying capacity of over 9 million cbm, which is about 15% of the world capacity.

Of Nakilat’s 63 LNG carriers, 25 are wholly-owned while the remaining 38 are jointly-owned with other reputable shipping entities. They are either operated by NSQL, STASCO (Shell International Trading and Shipping Company Limited), or through our joint venture operators such as MOL, NYK, ‘K’-Line, Maran Gas, Pronav and Shipping Corporation of India; and deliver LNG to 23 of the 26 LNG terminals worldwide.

In 2007, Nakilat was mandated to manage the design and construction of a ship repair and construction yard in the State of Qatar’s Port of Ras Laffan. Today, Nakilat operates the world-class Erhama Bin Jaber Al Jalahma Shipyard through its two strategic joint ventures, Nakilat-Keppel Offshore & Marine (N-KOM) and Nakilat Damen Shipyards Qatar (NDSQ). It also provides shipping agency services through Nakilat Agency Company (NAC) for all Qatari Ports, as well as towage and other marine support services through its joint venture Nakilat SvitzerWijsmuller (NSW) for vessels in Qatari waters. Nakilat’s diverse involvement across the maritime supply chain makes it a well-rounded maritime organization in Qatar, complementing its strong desire and vision to be a global leader and provider of choice for energy transportation and maritime services.

Being located in Qatar, currently the world’s top exporter of LNG, gives Nakilat an outright competitive advantage. We also have access to and have built-up unrivalled skills and expertise on LNG shipping generally. Our involvement across the LNG supply chain, starting with ship owning and management to dry docking and repairs, agency and logistical support as well as towage services, places Nakilat in a unique position to closely monitor and control these processes, thus ensuring the safety and integrity of cargo transportation from Qatar to the rest of the world.”

Market outlook and tanker orders

Speaking of the current situation in the LNG shipping market, we can observe a small number of tanker orders this year due to, what analysts say an “oversupplied market” and low LNG prices.

Many reports forecast that the prices and demand will pick up in the next couple of years with the situation improving significantly post 2019.

LNGWN: What is your opinion on this and what obstacles are LNG shipping companies facing now?

“Despite the current market conditions, we expect LNG seaborne trade will grow in the medium term. The new LNG capacity currently under construction exceeds 120 million tons, half of this coming from Australia. This LNG eventually has to move and it will likely move inefficiently on longer voyages due to the low demand. This should be good for shipping but the overcapacity of the vessels and the supply-demand mismatch will keep the downward pressure on short-term charter rates in the near term. However, with additional liquefaction capacity coming online, rates should continue to improve, though the level might not reach what ship owners desire.

We all operate in a capital-intensive industry. Financing the purchase of additional vessels comes through the cash generated from operations, borrowings from banks and equity financing. Thus, a major obstacle for LNG shipping companies is the current limited financing. The international banking system trails in deleveraging process and bankers are only willing to lend to companies that have either strong balance sheet or tangible steady cash flows from projects with first class counter parties.

In addition, the rapidly growing LNG fleet requires a substantial number of well-trained people in a very short time who can perform consistently to a high standard. This will be a challenge for LNG shipping companies because the scarcity of well-trained people available in our specialized industry.”

LNGWN: What are your expectations on the LNG shipping market dynamics for the mid-term and long-term?

“The LNG chartering market is undergoing major changes. The spot LNG fixtures are rapidly growing and now make up for a larger proportion of the total charter market. The short-term fixtures are currently a third of the total chartering activity but the market expects this number to reach around 50% in the next 4 to 6 years.

As mentioned previously, a moderate increase of charter rates in the short-term is expected due to the rise of tender activities by both new liquefaction projects coming online and the restart of liquefactions which were under maintenance. In the long run, charter rates should reach the levels which are adequate to cover costs and provide a healthy return on investment.”

It is obvious that this is not the best time to order an LNG vessel. However, the LNG shipping market will require more vessels to meet the upcoming wave of new LNG supplies.

LNGWN: Does Nakilat have any plans on ordering new vessels or expanding its business in the near future?

“Nakilat is one of the world’s largest LNG shipping companies, which has the unique advantage of being based in the most significant LNG hub. Historically, our development was based on the Qatari projects and our strong connections with our JV partners, but with Qatari volumes stabilized and with the optimization of the trade routes we see little room for expansion in this specific market. Our focus is now shifting towards the new projects as well as alternative markets such as FSRUs.

While we are confident on the long-term future of LNG shipping, our growth strategy is measured and balanced. We maintain a close relationship with the market and we constantly evaluate business opportunities but any growth will need to be sustainable and supported by firm commitments.”

LNG repairs

You are also the chairman of Nakilat’s joint venture with offshore rig constructor and ship repairer Keppel Offshore & Marine.

Established in 2007, N-KOM had last year celebrated its 100th LNG carrier repair at the Erhama Bin Jaber Al Jalahma Shipyard in Qatar.

Obviously, vessel repairing and maintaining are very important in prolonging the life span of an LNG tanker that lasts an average of about 25 years.

LNGWN: Could you update our readers on N-KOM’s LNG repair business and do you see room for expansion here?

“Nakilat is in a unique position as the company is able to leverage on the existing synergy and capabilities within the organization to carry out repairs and maintenance for its fleet, thereby allowing it to have direct control over the process. This is vital step in ensuring the integrity of Qatar’s LNG supply chain as well as the cargo transportation from Qatar to the rest of the world.

The LNG repair business at N-KOM remains resilient, with more than 130 LNG drydocking and repairs completed to date. The shipyard carried out the MEGI retrofit for our Q-Max LNG carrier Rasheeda and have also installed a Ballast Water Management System (BWMS) onboard another one of our Q-Max LNG carriers last year. In addition to offering ship repair and conversion capabilities at the facility, N-KOM has an in-house team of GTT-certified welders to carry out welding works for GTT Mark III and NO96 containment systems, as well as a flying repair squad capable of undertaking repairs during a vessel’s voyage or at anchorage.

N-KOM has further enlarged its footprint as a global LNG solution provider by entering into an agreement with HeLeNGi Engineering from Greece to retrofit several commercial ferries to run on LNG as fuel as part of the EU’s Poseidon Med project. To further boost its LNG-related prowess, the shipyard has an agreement in place with DNV GL to co-operate on LNG and gas-related projects, with DNV-GL providing its advanced R&D consultancy services for LNG applications to complement the shipyard’s business.

It is noteworthy that the shipyard’s track record for safe, quality and timely repairs extends beyond LNG carrier repairs, to also include other types of commercial vessels such as tankers, bulk carriers, containers and offshore support vessels. N-KOM also offers repair and maintenance services for jackup rigs, liftboats and offshore platforms, as well as fabrication services for offshore structures such as liftboats, jackets, piles and wellhead platforms. Its comprehensive marine and offshore service offering makes N-KOM one of the leading shipyard’s in the region.”

LNG as fuel

What was 5 to 10 years ago just a plan is now becoming a reality. A growing number of shipowners are turning to LNG as a fuel for their vessels due to stringent emission rules and operational benefits of this “clean-burning” fuel.

Nakilat’s 266,000-cbm LNG tanker Q-Max Rasheeda also had its diesel engine converted to run on LNG last year.

LNGWN: What is your point of view on LNG as fuel for ships?

“Green shipping is the future of the maritime industry as we see it and LNG as a fuel can represent a significant part of that future. As a global leader in LNG transportation, we look to adopt the latest green technologies onboard our vessels to enhance operational efficiency and operate in an environmentally-responsible manner.

We have effectively capitalized on our vast expertise in handling gas carriers and managed the world’s first ME-Type Gas Injection (MEGI) retrofit for our Q-Max LNG carrier, Rasheeda, to run on LNG as an alternative fuel last year. The modified vessel has the world’s first low-speed marine diesel engine that can utilize vapourised LNG and HFO (Heavy Fuel Oil), depending on the requirements of the voyage.

The use of MEGI allows a cleaner fuel technology with a significant reduction in environmental emissions, cleaner burning engines with potential to increase mean time between maintenance, provide flexibility of fuel supply to react to market changes and reduced bunkering activities which in turn will offer operations and marine risk reduction.

The converted vessel is able to operate with maximum flexibility in a safe and sustainable manner, enabling the vessel’s engines to meet current and future emissions standards set by the International Maritime Organization (IMO).”

LNGWN: Are you planning to convert the rest of your fleet to sail on LNG?

“Nakilat is committed to the sustainable development of the maritime industry. There is no denying that the use of LNG as fuel is gaining momentum within the industry and it is the fuel of the future.

As such, the pilot MEGI retrofit will serve as a benchmark and pave the way for the conversion of the rest of our fleet in the future.”

Interview prepared by Mirza Duran