Seaborne LNG is on its way up. “In 2017, seaborne LNG trade is projected to grow by almost 10% y-o-y to top 294 million tons, with cargoes conveyed by a fleet of (at present) almost 500 LNG carriers,” reads an analysis piece from Clarksons Research. The LNG carrier fleet is also set to expand rapidly, by over 14% in unit terms in full year 2017.
LNG projects and carrier vessels are soaring, and with such an auspicious future, it would be almost foolish not to invest in such a ‘miraculous’ alternative fuel. Not only is it cheaper and more energy-efficient, but it also complies with reduced CO2 emmissions which makes it extremely attractive for the international fleet and its continuous environmental crusade. This drives the industry’s tendency to lean towards these type of projects, despite the fact that for the rest of the maritime transport industry the use of LNG requieres high investment: vessels must be equipped with combustion systems compatible with the fuel and port terminals must have specific LNG capacity for re-fueling.
LNG’s ups and downs
For the time being, the relationship between LNG terminal capacity and LNG carrier fleet have both grown at an average 9% in the decade to 2007. But, according to the document, “in following years, the ratio slid down into the 0.7-0.8 mtpa/vessel range, as fleet growth outpaced liquefaction capacity expansion from 2007 to 2016, with a CAGR of 8% versus less than 7%. Two main factors seem to have been behind the disparity: speculative ordering amplified by Japan’s 2011 Fukushima nuclear disaster, which saw LNG carrier charter rates surge, and start-up slippage at projects such as Angola LNG (5.2 mtpa) and Gorgon LNG (15.6 mtpa). Combined with outages, the result has been LNG carrier oversupply and challenged markets in recent years.”
But LNG project slippage is common. So there is a relationship between liquefaction capacity and the LNG carrier fleet, though it is not specifically one-to-one. And while there are clearly many relevant factors, looking at supply-side ratios such as mtpa/vessel can be a useful high-level approach.
If LNG carriers are not careful, they could let themselves get carried away by the industry’s latest ‘hen with the golden eggs’, only to overstock the market in a short time and relive the story of oversupply/low demand the containership industry is currently facing.
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