LNG newbuilding prices dropped sharply but orders remain weak

Costs of building a liquefied natural gas (LNG) carrier have declined lately due to the oil and gas industry downturn but this did not encourage shipowners to order new vessels. However, in the next four years, things could change.

Many say that the current LNG shipping market is weak with low spot freight charter rates and due to an oversupply of LNG vessels available at the moment.

However, with new supplies coming from the U.S. and Australia, there will be a need for new orders for LNG tankers to meet the upcoming demand.

Speaking to analysts on Teekay LNG’s full-year 2016 results on Thursday, Brody Speers, the newly appointed Chief Financial Officer of Teekay Gas Group, said  that “new building prices seem to have dropped quite sharply.”

“Regardless, we haven’t seen many orders. So this goes to the point we mentioned earlier that even though prices are probably well below even $190 million, there haven’t been a lot of opportunities for ordering, as evidenced by the fact that only five orders have taken place since October 2015,” said Speers.

Prices to build a conventional LNG tanker of about 160,000-cbm were around $200 million or more before.

Although the short-term outlook for the LNG shipping industry does not look good, the medium and long-term outlook could bring a whole another story because of expanding worldwide LNG export capacity.

“12 new LNG projects are currently under construction, with more than 120 million tons per annum of new export capacity coming online by 2020,” Mark Kremin, Teekay LNG’s Cheif Executive told analysts.

“As a result, we estimate that global LNG trade will grow by approximately 36% by the end of the decade, compared to expected fleet growth from the current order book of approximately 27%,” Kremin said.

“We therefore believe that the current order book is sufficient — is insufficient, excuse me, to meet LNG shipping demand in the coming years and we estimate that a further 20 to 30 additional new build orders will need to be placed for delivery by 2020 in order to meet this demand,” the CEO added.

LNG World News Staff