Robust Cross-border LNG Trade Fuels LNG Carrier Market Growth
Liquefied natural gas (LNG) is one of the most commercially viable energy solutions that are being adopted worldwide, especially by developing economies. Year-on-year increase in the demand for LNG across the globe has benefitted the LNG logistics market. Floating liquified natural gas (FLNG) demands a massive set-up for extracting natural gas from deep and ultra-deep offshore oil and gas reserves. The extracted natural gas is liquefied and then stored in form of FLNG. The LNG is transferred from FLNG storage facilities to LNG carriers for cross-border trade activities. LNG is then re-gasified and used for specific operations.
In 2019, global LNG trade in terms of volume accounted for 354 MT, a 13% increase vs 2018. More than 40 countries were importing LNG and approximately 20 countries were LNG exporters. In 2019, 119 MT (34%) of global LNG volumes were traded on a spot or short-term basis. However, in the year 2020, LNG trade shrined to 2-3% compared to 2019 owing to COVID-19 impact on seaborne trade activities.
Investors Eye Opportunities in Development of New/Retrofit LNG Carrier Vessels
The market is driven by the arbitrage opportunity that exists between the supply side (North America, Africa, Qatar, Australia, and Russia) and demand side (East Asia, Europe, and emerging importers) of the LNG market. Strong dynamics on both the sides create a profitable opportunity, which can be constrained by the lack of liquefaction capacity of LNG carriers. Following the Fukushima nuclear disaster and the resulting increase in LNG demand in 2012, the LNG carrier fleet was operating at a 98% utilisation rate and was on occasions able to charge record charter rates for spot cargoes of $150,000/day. Consequently, this presented an opportunity for a profitable investment in LNG carriers. A new wave of foreign direct investments (FDIs) on new supply projects is expected to create even more demand for shipping.
The LNG industry has witnessed increasing an interest towards small-scale LNG. Increasing investments in small-scale LNG terminals is one such upcoming trend which has penetrated the market in the recent years. The small-scale LNG terminals are primarily designed to focus on the requirements of small demand and supply centres. The export terminals in this market are mainly developed in close proximity to small gas fields and distribution centres. On the other hand, the import terminals are developed around small demand centres, usually to cater to natural gas requirements of specific end user segments.
COVID-19 Pandemic Hampers Status of LNG Newbuilding Contracts
The ongoing COVID-19 pandemic has resulted in a low newbuilding orders, thus, is challenging for shipbuilders. The LNG carrier (LNGC) order book at the start of Q2 2020 stood at 161 vessels, with just two LNGC contracted so far in 2020. Around 60 LNGCs were contracted by owners for newbuilding construction in 2019. Thus, due to the COVID-19 pandemic followed by trade restrictions, the LNG newbuilding contracting is down by 87% in the first 12 weeks of 2020 compared to the same period in 2019. However, backlog orders followed by new orders is expected to surge the demand for LNG carriers in the next few years.
Large-sized Mark III & Mark III Flex LNG Carriers Dominate Order book
In 2020, the LNGC order book was dominated by larger vessels. Given this, there were no Q-Max (230,000-m3 to 300,000-m3 capacity) or Q-Flex (200,000-m3 to 229,999-m3 capacity) LNGCs on order, although there have been hints that these are coming. The order book was dominated by the 142 LNGCs between 100,000-m3 and 199,999 m3 capacity. The propulsion system of 121 of these contracts is known to be based on low-speed diesel. Dual-fuel engines have been specified on 21 of the large-sized LNGCs on the order book. The propulsion systems of the remainder of the large-sized LNGCs on order is not recorded.
Currently, Mark III and Mark III flex dominates the global LNG carriers market, closely followed by GTT No. 96 LNG containers. However, small-scale LNG reflects highest growth prospects compared to other types. This growth potential is attributed to planned projects in line with decrease in CAPEX expenditure, when compared to large-scale LNG infrastructure.
Asia Pacific Leads in Terms of LNG Carrier Fleet; South Korea Prominent
There are three leading national construction markets for LNG, viz. South Korea, China, and Japan. Globally, the LNG shipping fleet saw its biggest expansion in 2018, with the delivery of more than 70 new LNG carriers and one of the largest order volumes in a given year. The pace of deliveries in 2018 and 2019, which now hold together 94% of the order book in unit terms, will shape the industry for the foreseeable future. In the first seven months of 2018, 28 large LNG carriers were ordered, more than 26 ships ordered collectively in 2016 and 2017. The record for new orders was set in 2014, with 62 large gas carriers in a single year. A total of 43 LNGCs are due to be delivered in 2019 and 45 in 2020.
The economy of Asia Pacific has witnessed a substantial growth in the past decade. Looking at the growth prospects, it is evident that access to economical and abundant energy sources would be a crucial factor supporting the momentum of this growth. On January 2021, four new LNG carriers were delivered by South Korean shipbuilder Daewoo Shipbuilding and Marine Engineering (DSME) to Flex LNG. Among the markets in Asia Pacific, South Korea has the highest share in the total global fleet and by 2018, nearly 66% of all the vessels were produced in South Korea.
Global LNG Carrier Market: Competitive Landscape
Some of the key players in the market include MISC Berhad, "K"Line (Korea) Ltd., Nakilat, Mitsui O.S.K. Lines, NYK Line, Samsung Heavy Industries Co., Ltd., Mitsubishi Heavy Industries, Ltd., Hyundai Heavy Industries Co., Ltd., Daewoo Shipbuilding & Marine Engineering Co., Ltd., and Kawasaki Heavy Industries Ltd. The top 12 players control about half of the trading fleet and account for around 30% of the order book.
Daewoo Shipbuilding & Marine Engineering Co., Ltd. (DSME), Samsung Heavy Industries (SHI), and Hyundai Samho Heavy Industries (HSHI) constitute the big three shipbuilders in South Korea. In December 2020, the latter two collectively received another seven newbuild LNG carrier orders.