Thursday, March 19, 2009
Optimistic outlook for LNG shipping
Thursday, 19 March 2009
THE generally long-term nature of the liquefied natural gas (LNG) market makes it relatively more stable than that of oil and, as a result, it is much more insulated from the current global economic turmoil. According to Stephen Ainscough, Thome Ship Management general manager for projects, there was a shortfall of LNG last year because a number of construction projects around the world had been delayed as they were being built in remote locations.
As a result, the vessels slated for these projects were left idle and ended up flooding the LNG shipping spot market, which had very little LNG to be transported on a spot basis in the first place.
'With the projects coming on line through 2009, one would generally expect the number of ships laying idle to reduce and the spot market to improve towards the second half of 2009,' said Mr Ainscough. 'This improvement will follow production that is currently at 175 million tonnes in 2008 and increase to 290 million tonnes by 2009.'
Added Keith Bainbridge, managing director of LNG Shipping Solutions: 'LNG has been and probably always will be underpinned by a long-term approach so that 70-75 per cent of all project sales will be against long-term SPAs, the duration of which may come down to 10-15 years as we go forward. Shipping will predominantly follow this trend although we have seen some speculative orders placed in previous years that today are somewhat exposed and unemployed. The fleet remaining long will continue for the foreseeable future and certainly will see no real change until Q4 2010.'
The Sea Asia 2009 Conference includes a session on LNG shipping which is organised in association with the Society of International Gas Tanker and Terminal Operators (SIGTTO). Thome Ship Management is one of the sponsors of Sea Asia 2009 and Mr Ainscough will be speaking at the session along with other industry players.
In terms of market segments, Thome said that the Floating Storage and Regasification and liquefied petroleum gas shipping sectors grew last year. Mr Ainscough expressed confidence that the floating storage segment would continue to grow although the rate would depend on the overall recovery of the world economy.
'Generally speaking, the amount of expenditure required for the floating gas solutions and the time taken to bring them to reality is substantially less than shore-based projects. Based on this, provided the engineering and economics behind the project is sound, the risk for investors is lower due to the lower capital expenditure.'
The production and regas rates are also generally lower, which means that the capital required to run the project is less - something useful in a tight credit market.
'We also expect to see continued growth in the Thome LPG Fleet as more LPG owners look for a quality operator to manage their assets as the requirements for trading with oil majors are continually tightened,' Mr Ainscough said.
Mr Bainbridge, however, noted that while most of the world fleet is seeing quite good utilisation, some operators are struggling. 'Most of the business is doing well and it is only the owners such as MOL, K-Line, Dynagas, TMT, Moeller and MISC who have unchartered modern tonnage that today is either idle or achieving charter rates below break even.
'The remainder of the fleet is on long-term charters with healthy revenue stream although some of the deals concluded in the past three years are very marginal indeed and their operating costs have increased significantly compared to the 3 per cent index that is typically negotiated in charters.'
As such, it is important to prepare for all contingencies. Said Mr Ainscough: 'Like all business, shipping is no different; the risk to business increases if you operate your business in one market sector. To stabilise and protect companies' cash flows in the long term, companies need to operate in a number of market sectors in the same business.'
For Mr Bainbridge, cost reduction is key. 'Given the global downturn and depression, reducing costs is probably the tool most used and, as such, marketing may well be hit. For LNG, if there is no product, the ships won't be used.
'Ton/miles are increasing, which is great for vessel utilisation, but with falling demand for gas along with falling gas prices, the charter rates will probably fall even further. I would not be surprised to see rates fall to operating costs for some fixtures if only for the owner to avoid paying fuel charges when idle.'
Singapore, however, is in a good position to benefit from the market, being strategically placed geographically and with an attractive business environment for gas shipping and offshore companies, said Mr Ainscough. 'A large percentage of the new production coming on line is Asia or Asia-Pacific projects,' he noted, pointing to new facilities coming online in Russia (Sakhalin), Indonesia (Tangguh) and Australia.
Australia has large projects coming online in the West as well as in the East and coal bed methane projects are also gaining momentum.
Mr Ainscough said: 'Potentially, the port of Gladstone in Queensland will be exporting over 30 million tonnes of liquefied gas a year. This equates to one LNG vessel in and out of the port every day. As this technology is proven, I would also expect this production to increase in both Australia and Indonesia as both countries have large coal reserves. The combined projects will see an increase in gas shiping as a whole in Asia.'
Mr Bainbridge is also optimistic for Singapore, but rather on the downside. 'I would envisage the lay-up preparation to create a lot of business (and) conversion work may also produce some yard business.'
Source: Business Times
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