* LNG shipping firm to run at or near full capacity for
* Shipyards fully bookend through 2014
* Charter rates likely peaked but not big fall expected
By Balazs Koranyi and Rebekah Kebede
OSLO/PERTH, March 12 Freight rates for
liquefied natural gas, the super-cooled commodity in red hot
demand as the world struggles to replace lost nuclear capacity,
will stay elevated and volatile at least through 2014, shipping
LNG is one of the few profitable sectors in the shipping
industry, in contrast to dry bulk and tanker markets, which
continue to suffer from oversupply and funding difficulties.
The LNG vessel fleet will be running near full capacity over
the next several years as Asian demand soars, driving up tanker
earnings after years of poor demand.
Many of the latest orders for new tankers are speculative
punts designed to reap the benefits of increasingly fat
The handful of shipyards that can build the highly
specialized LNG vessels are fully booked through 2014, and the
new vessels on order will be barely enough to handle output from
a slew of LNG production projects either coming on line or up
for final investment decisions.
Close to a tenth of the LNG fleet is also ripe for
scrapping, so shipping firms are bound to take capacity off the
market if prices ease significantly.
"LNG is simply in high demand. and it's not just the
consequence of Fukushima," said Jon Skule Storheill, chief
executive officer of Norway LNG tanker operator Awilco LNG
. "There's Korea, there's Taiwan, this market is just
strong. Gas is clean, it's available and it's cheap."
Short-term charter rates reached a peak of $160,000 per day
in recent months, due in great part to a jump of around 12
percent in Japanese gas demand as the country replaced nuclear
capacity shut after last year's earthquake and tsunami.
Rates have since eased back to the $125,000-$140,000 range,
still an astronomical figure compared with $37,000 in 2010.
"We may not see it going back to where it's been. The
$150,000-$160,000 level was probably the peak, but that doesn't
mean it will fall as the market will remain tight for at least
the next 18 months," said Andy Flower, an independent energy
Newly built vessels will ease some of the price pressure but
add to charter rate volatility.
Two-thirds of the vessels on order are uncommitted, a big
change for an industry used to low-risk, long-term commitments,
says Peter Illingworth, a managing director for DVB Bank SE.
"What's new is the ordering of the vessels on a flexible
basis without any fixed route and many of those vessels which
have been ordered without any fixed route also don't have
charters yet," Illingworth said.
The rising popularity of short-term charters and the
increasing role of brokers also force the rest of the sector to
cut charter periods and move to shorter contracts, said Patrick
De Brabandere, chief operating officer of Belgian natural gas
shipping company Exmar.
Brokerage Carnegie estimates that LNG shipping capacity
utilization will jump to 98 percent this year from last year's
90 percent and remain in the 96-98 percent range through 2015.
U.S. GAS GLUT
The market's longer-term outlook is clouded to a great
extent by the U.S. gas glut, which pushed U.S. gas prices below
$3 per mmBtu, a bargain compared with the Asian spot price of
$15 per mmBtu .
That is pushing gas firms to find ways of getting the gas
offshore. Seven export plants are proposed to come online within
the next three to five years, a potential huge opportunity for
LNG shipping firms.
"There's a huge potential in export from 2016 onward. Even
just one or two (projects) would be a shift in the market," said
Brian Tienzo, chief financial officer of Norway's Golar LNG
In 2012, traded volumes are seen rising by 6 to 8 percent
while shipping capacity is broadly unchanged as scrapping
offsets new vessels coming on the market, although operators may
be tempted to extend vessel lifespans.
Pareto Securities sees a need for an additional 175 vessels
by 2020, while Fearnley Fonds, which specializes in the shipping
sector, said at least this many would be needed by 2017, with
the figure rising to 220 if all planned capacity comes online.
Newbuild orders total just over 60, so by any calculation,
over a 100 more vessels must be ordered just to keep the
market's precarious balance.
"Nine percent of the fleet is very old and ripe for
scrapping, so if you see rates come down, many of those vessels
will be pulled from service," Maria Bitri, an LNG shipbroker for
The big risk to shipping firms is production delays.
"LNG carriers have always been delivered on time and on
budget, and history shows liquefaction is always a bit late,"
Sveinung Stoehle, chief executive of Hoegh LNG said.
Indeed, the two big projects due to come on stream in 2012 -
Australia's 5.7 bcm per year Pluto export terminal and Angola's
5.2 bcm per year terminal - have both faced or are expecting