Westwood: new markets, trade routes to boost LNG carrier demand

The increases in LNG cargoes coming to the market over the recent years has led to oversupply, putting pressure on spot LNG prices and impacting the demand for newbuild carriers. 

The liquified natural gas carrier market has been highly cyclical and is often driven by global macroeconomic events.

The growth of LNG carriers over the past decade has been synonymous with the growth in global LNG import and export capacity, energy industry consultancy, Westwood said.

However, with the oversupply impact, in 2016, orders for newbuild LNG carriers amounted to only 6 units (excluding two optional orders), a 92 percent decline compared to the number of LNG carriers ordered in 2014.

The recent focus on the LNG market oversupply and the continuous growth in LNG export capacity is, however, masking the continuous increase in LNG demand. Whilst increasing demand has been driven by traditional demand hubs, such as China and India, several new LNG importers including Poland, Jordan, Malta, and Pakistan have also emerged in the last two years, Westwood notes.

This is part of a trend of more countries seeking to utilise LNG to diversify their gas supply and improve power generation. Westwood expects this trend to continue, as 16 additional countries, including Bangladesh, India, Russia, and Sri Lanka, commission their first FSRUs over the 2017-2021 period.

“These units are expected to unlock new import markets by providing a quick and cost-effective solution to the increasing local gas demand,” Westwood said.

Over the forecast period, much of the LNG that will drive supply increase will come from mega projects like Chevron’s Wheatstone in Australia, as well as North American projects such as Next Decade’s Rio Grande and Cheniere’s Corpus Christi.

The increase in demand will be driven by small and medium sized projects dotted across the world. As a result, LNG carriers will have to travel longer distances from supply bases such as the US to Asia/Europe or East Africa to Asia and this could potentially lead to an increase in carrier demand.

Westwood added in its review that over 219 new-build LNG carriers are expected to be delivered over the 2017-2021 period, including 17 new units that have been ordered in since 2017. The expected deliveries also include 92 new-build LNG carriers, which are yet to be ordered.

Over 80 percent of LNG carriers ordered in recent years have trended towards the large conventional carriers (150,000-179,999 cubic meters) indicating the significant design improvements the industry has made for greater cost and operational efficiencies.

Whilst Westwood still expects oversupply to persist beyond the forecast period, continuous pro-gas energy policies in Asia in combination with expanding LNG trade routes are expected to support the demand for newbuild LNG carriers.