Author: Joseph Murphy, Natural Gas World | 9 May, 2023
Europe’s loss of most of its Russian pipeline gas supply following Moscow’s invasion of Ukraine last year drove global LNG demand to a record high, as European importers were left scrambling to secure significantly more cargoes of the super-chilled gas to meet customer demand. Not only is Europe rolling out new LNG import projects at a pace never seen before, but suppliers across the world are rushing to meet the demand surge by fast-tracking new supply developments. In December, Wood Mackenzie estimated that more than 100mn metric tons/year of new supply could be sanctioned before 2024.
Not only is the LNG market tight, and expected to remain tight for several more years until the next wave of new supply arrives, but so too is the market for LNG carriers (LNGCs), needed to deliver the fuel to markets. The situation has been exacerbated by some carriers exiting the global fleet in order to be converted for use as floating regasification and storage units (FRSUs), mostly in Europe.
At the height of the LNG supply crunch in autumn last year, a scarcity of LNGCs to carry the fuel caused a spike in charter rates. For example, in November last year, spot charter rates for LNG tankers soared as high as $500,000 per day. Prior to 2021, in comparison, the record was under $200,000 per day. Charter rates have since fallen as the LNG market has loosened following a mild winter in Europe and amid low industrial activity, and now are under $200,000. But experts predict they could rebound in the latter half of this year on the back of Asian economic recovery.
Amid heated competition for LNGCs, orders for new vessels have subsequently hit new heights. Data from Refinitiv shows that global orders for LNGCs reached 163 in 2022, which was more than double the number in the previous year and represented the greatest volume since 2011. This is good news for South Korean and other major shipbuilders, which are predicting robust profits on the back of the increase in orders. And the growth in orders is expected to continue.
A lot of the new recent orders are tied to Qatar’s North Field expansion projects, which are set to raise the Gulf state’s liquefaction capacity from 77mn mt/yr at present to 126mn mt/yr by 2027. According to the International Gas Union (IGU), that project alone will need around an extra 150 LNGCs. QatarEnergy, North Field’s operator, signed slot reservations deals in 2020 with South Korean shipbuilders Korea Shipbuilding & Offshore Engineering, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries for the construction of over a 100 LNGCs over the coming years, along with another for 16 with China’s Hudong-Zhonghua Shipbuilding.
The LNGC fleet currently stands at around 640 vessels. But by 2026, its size is due to exceed 1,000 vessels, according to a January market analysis released by shipbroker Howe Robinson Partners. Howe Robinson estimates that 48 newbuilds will enter service this year alone, of which 28 will have capacities ranging between 174,000 and 200,000 m3. The shipbroker notes that most new vessels entering the fleet over the next few years will be delivered into term charters, keeping the spot market tight.