Although the LNG sector is moving forward, it is still hampered in some areas, says Barry Luthwaite
The energy slump is still affecting LNG prospects. Ordering has slowed considerably and several exploration projects under development by the oil majors have been delayed or are facing mothballing until things improve.
Demand for gas is steady, but many of the exploration projects are linked to long term COAs from newbuildings. The result is that owners are seeking newbuilding delays or negotiating lay-up on delivery. Some will trade on the spot market but this is not always possible since vessels are built to specifications to serve purpose-built terminals.
Spot fixing however is becoming a way of life and the market is now witnessing owners establishing LNG pools as they wait for higher time charter rates. All the energy majors have taken a bashing from the fall in oil prices with OPEC’s remedial situation failing after a few short weeks.
The encouraging factor is that the markets are seeing more tenders emerging for long term development projects and developing countries like Indonesia and Bangladesh pursuing their own LNG ambitions by acquiring or leasing tonnage. LNG prices have dropped over the last few years and it is a good time to be ordering gas carriers.
A study of the LNG orderbook reveals a backlog of 137 vessels on order including FSRU that will commission 26,333,266m3 of capacity by 2019 for all but eight units. The latter take deliveries as far ahead as 2023. Most owners are optimistic of better times ahead from the end of 2017. Clean air regulations will always boost the gas industry. Around 20 LNG carriers are currently laid up on a cold state basis, while several others are in a warm status position waiting for spot employment prospects.
In the meantime, research and development continues apace. Japan is gaining ground against South Korea in the LNG construction rivalry. The country received a blow this year, however, when Kawasaki Heavy Industries confirmed it will transfer conventional ship construction from Japan to China. The shipbuilder already has interests in China but will retain construction at Sakaide for gas carriers only in both LNG and LPG sectors. The company has been hit hard by the offshore slump but sees a future in gas because of tightening environmental regulations.
Due to the difficult market conditions more owners are turning to floating storage and regasification units (FSRUs). Pioneered by Norwegian owner Hoegh LNG, 2017 so far has been productive in this sector. Maran Gas, Greece booked a single unit from Daewoo for delivery in 2020 but no employment has been secured so far. An option is attached for two more. Hoegh itself has followed up with a further 174,500 m3 FSRU option at Hyundai where all seven previous vessels have been built.
In a break with previous policy Samsung has been chosen for a further FSRU with options attached for three more, vindicating the faith of Hoegh LNG in this concept. The company’s eighth and ninth newbuildings both have long term employment.
More countries are expected to employ this energy source offshore but charters at the right rates are not easy to achieve. Hyundai is currently negotiating a further FSRU with Turkish construction companies Kolin and Kaylon in working partnership with the government. New markets are expected to spring up in South Asia, Middle East and South America for imports of FSRUs.
Dynagas is expected to join Maran Gas as a second Greek owner by ordering at least one FSRU. Plans to convert an existing fleet unit were abandoned when the vessel secured a favourable charter. Unconfirmed reports indicated two FSRU’s were committed at China’s leading LNG builder – Hudong Zhonghua – but nothing transpired. Undoubtedly this yard will be among the bidders for any new contract.
With the downturn in the short term, some existing LNG newbuildings with long lead times are under the microscope for conversion to FSRUs, with Golar LNG leading the way. Tenders are expected to be invited by the end .of 2017 for a 135,000 to 170,000 cu.m. FSRU to be anchored off Alexandroupolis and linked to a natural gas transmission system and subsequent markets. It will be built for Greek utility company Gastrade who will be assisted by shipowner GasLog which has a 20 per cent shareholding in the utility company. Other bids for FSRUs are in the pipeline from India, Indonesia and Argentina. Excelerate Energy has signed a letter of intent for one plus optional six 173,400m3. FSRU’s.
There is concern over the lack of LNG infrastructure for LNG bunkering. There are still only a handful of vessels in service or under construction, much to the disappointment of shipowners who want to employ dual fuel propulsion on their ships but continue to be frustrated over lack of shore and afloat facilities. Northern Europe, Scandinavia and the Baltic are the most advanced.
Now Asia is examining more dual purpose vessels to serve dual roles of coastal trade and bunkering duties. Offers have been invited from South Korean owners for construction of two 7,500m3 LNG tankers whose principal purpose will be to supply the island resort of Jeju Island with natural gas to generate power. The ship design will allow for bunkering operations also. The duo will operate for the state owned utility Kogas from their Tongyeong terminal.
The Chinese were to first to introduce a policy of construction of small scale LNG vessels to serve their vast hinterland. Kogas has specified utilisation of its KC-1 cargo containment system which is normally employed on very large gas carriers. Imabari has revived the application of self-supporting prismatic type-B LNG cargo tanks for a newbuilding 165,000 cu.m. unit for Mitsui OSK Lines. The vessels are being built by Japan Marine United.
The tank system eliminates cargo sloshing damage but is expensive to fit. Now Japan Marine United will seek a license to adopt the tank system for a series of proposed coastal LNG tankers to serve Japan’s hinterland. Imabari has also supplied two 13,160m3 SPB cargo tanks for an FSRU which will commission for Exmar, Belgium in China and is based on a barge concept.
With the relative ordering drought for conventional LNG carriers the industry has responded strongly with more innovative ideas for the future designs. It is noticeable that where there is a disappointing take up of LNG bunkering tankers, barge construction is thriving. Ship to ship transfers are also occurring pioneered by Dutch owner Anthony Veder
With a dearth of conventional business there is intense competition for four specialist ice breaking shuttle tankers to serve the Yamal Peninsular in the Russian Arctic. Export of Yamal’s first cargo is expected to materialise by the end of the year while some experts say it could be in October.Shipments will be handled by the Arc 7 173,400m3 ice breaking units capable of conquering sea ice of up to 2.1 metres thick. The first LNG carrier for Yamal – Christophe de Margerie is currently undergoing extensive ice trials for the SCF Group (Sovcomflot).
She is due to be joined by 14 sisterships over the next few years which will export Yamal LNG to Asia using the Northern Sea Route between May and November. The four LNG shuttle tankers are the subject of intense bidding between Samsung,and Hudong-Zhonghua with NYK in collaboration with Itochu Corporation likely to assume ownership of the vessels.