* LNG vessel rates halve to $70,000/day
* Leveraged owners struggle to turn profit
* Rates will fall further -analyst
* Crude, oil products tanker market recovering from downturn
By Jonathan Saul and Oleg Vukmanovic
LONDON, March 11 Deliveries of new gas tankers
have created a glut that is threatening to tip some operators
into losses, just as other shipping markets emerge from their
worst downturn in decades.
The liquefied natural gas (LNG) tanker market was until
recently the only bright spot in an otherwise depressed freight
industry. A global surge in the demand for gas, led by Japan in
2011, boosted trade, tied vessels to longer routes and drove
rental rates to record highs.
But the 119 new carriers ordered from 2011 will have
expanded the fleet by over 30 percent by end-2017. As tankers
leave the shipyards, delays in construction of new LNG export
plants and erratic global gas output have curtailed demand for
Earnings have halved to around $70,000 per day over the past
year, leaving only a thin profit margin. Owners that relied on
financing to buy new vessels may be barely covering their debt
"Some of the highly leveraged owners dependent on spot or
short-term business will be close to their breakeven costs at
current rates," Erik Stavseth of Arctic Securities said.
Industry analysts warn of a still deeper slump ahead as
attempts by owners to delay deliveries of new vessels could
result in a surge of additional capacity by year-end.
Thirty-two vessels were delivered to the global fleet this
year, and another 63 are expected over the next two years.
"It is generally accepted that day-rates are not going back
to 2011-2012 levels this year as there are just too many vessels
available in the market," said Jon Skule Storheill, chief
executive of Norwegian ship owner Awilco LNG.
"We need to see more LNG volumes on the water as well as
some older vessels disappear first," he added.
Golar LNG described the market as very challenging
in February due to growing supply and lacklustre LNG output.
The lower returns are putting pressure on ageing vessels,
known as Old Ladies, to retire, given their higher costs for
maintenance, upkeep and fuel.
Data from maritime analysis firm VesselsValue.com showed
that 13 LNG tankers have been scrapped since 2010. Another 42,
which are 30 years or older, are candidates for scrapping,
The oldest LNG tankers now in the fleet - the 1969-built SCF
Arctic and SCF Polar - are to be sold for scrap by Russian owner
Sovcomflot Group this year once their charters with Spain's Gas
Natural Fenosa expire.
Norway's Hoegh LNG has sent its Norman Lady, a
1973-built vessel, to a Chinese scrap yard, where the metal will
be stripped and resold.
Peter Sand, chief shipping analyst with trade association
BIMCO, said the ships scrapped were mainly smaller LNG carriers.
"LNG vessels live a very long life," he said.
"For fundamental oversupply to crumble into dust, we need at
least two to three years of strong demand growth to
counterbalance the recent contraction."
In contrast, rates are rising for crude and oil products
tankers and for the dry freight market after over five years of
"Most shipping markets, with the exception of LNG, are in
the early stage of a cyclical revival as fleet growth falls
below trend for the next several years, while a stronger global
economy revives growth in tonnage demand," RS Platou Markets
said in a report.
Ship owners in those segments ordered large numbers of
vessels between 2007 and 2009, just as the global economy sank
into its biggest crisis since the 1930s. It usually takes three
years for a vessel to be delivered after it is ordered.
"The pace of new deliveries is slowing down sharply, with
only a handful of crude tankers delivered in both Q4 last year
and the year-to-date in 2014," Pareto Securities said.
"We believe this will continue in 2014 and 2015, with many
cancellations and delays on the ghost ships currently dominating
the order books."