New LNG shipping capacity: its adequacy with the sharp increase in liquefaction capacity and impact on the LNG trade
Mr. Aydar Shakirov, Gas Transportation & Storage Analyst | GECF| Gas Market Analysis Department
In this paper the authors intended to examine the factors impacting the development of the LNG shipping market as well as to analyze the retrospective dynamics of the shipping costs. This research was carried out in accordance with the list of directives agreed at the GECF Executive Board level and in line with the GECF Long-Term Strategy, adopted by the Ministerial meeting.
Recent years have witnessed a steady and robust growth in liquefaction capacity and LNG trade volumes. From 2012 to 2017, the global LNG liquefaction capacity increased by 92 to 376 mtpa, the global LNG trade rose by 56 to 288 mtpa and the global LNG shipments grew by 707 to 4,702 cargoes. From 2018 to 2020, the global LNG liquefaction capacity is expected to grow by 86 to 462 mtpa, while the LNG trade is anticipated to be over 310 mtpa in 2018 and over 350 mtpa in 2019, a growth mainly driven by Australia, US and Russia.
The expanding global LNG liquefaction capacity, growing global LNG trade and increasing number of global LNG shipments require an adequate growth in the number of LNG vessels and their shipping capacity. From 2012 to 2017, the number of LNG vessels worldwide increased by 133 to 467 vessels. In the same period, the total capacity of all LNG vessels increased by 10 to 33 mtpa. The number of LNG vessels and their capacity increased in line with the growing LNG trade and expanding LNG liquefaction capacity. In 2018 and 2019, 73 vessels are expected to be commissioned with overall capacity 5.5 mtpa, which is considered to be enough to meet the growing LNG demand. However, such factors, as the completion of the delayed LNG plants, massive exports from the remote U.S., a smaller number of vessels to be commissioned after 2019 and the growing share of LNG spot trade, might lead to a shortfall in available LNG vessels starting from 2020.
Since the construction of an LNG vessel may take at least two years, key stakeholders might take investment decisions on new LNG shipping capacity soon in order to increase vessel availability in the medium term. The shipping costs, which depend highly on shipping charter rates and fuel price, have a significant weight in the LNG business, representing up to 20% of the LNG delivered price. Based on the GECF in-house shipping costs model, the shipping costs have fallen dramatically since 2014. They decreased up to fourfold on some markets which raised the competitiveness of long-haul trade routes and entailed the decline in LNG delivered prices. In the short term, stable shipping fuel price and stable charter rates will entail the stabilization of shipping costs at the 2018 level and prevent shipping costs from skyrocketing to the pre-2014 level.
The most effective way for the GECF countries to not depend on the vessels availability, avoid the charter rates volatility and optimize shipping costs is to own LNG vessels individually or jointly with recognized partners. Besides, the practice shows that charter rates under long term shipping charter contracts are usually lower compared to the ones under spot charter contracts. Expert Commentary, New LNG shipping capacity: its adequacy with the sharp increase in liquefaction capacity and impact on the LNG trade