Growth No 1: Global fleet size
This is the most conspicuous and easiest to predict element of our market. It feels like only yesterday that we saw the arrival of the 300th LNG vessel in 2008, yet we’re now within days of hitting the 400 mark. Between 110-120 LNG-carrying vessels of different types will be delivered from shipyards between now and 2018, taking us through the 500 mark (even if some vessels are sent for demolition).
Watching the LNG fleet grow so fast is truly amazing, and this is before we start speculating on how many vessels will be built for projects that are expected to start producing post-2018. Will we see the continuation of this growth, in part fuelled by ship owners’ investments in new vessels without long-term charters attached, or will there be a correction towards a more traditional ‘one project – one fleet’ model?
We believe that once the as-yet unemployed DFDE (dual fuel diesel-electric) new buildings have been integrated into the global fleet, the latter will remain the preferred model for new projects, particularly if the next couple of years prove to be less profitable for vessels without secure employment, thus discouraging ship owners from pursuing more speculative investments in LNG assets.
However, there are those who believe that LNG vessels such as MRs (medium range) and VLGCs (very large gas carriers) will continue to be ordered by established owners and new players alike, with or without secure employment.
Growth No 2: Global LNG trade - its scale, reach and diversity
In the last two to three years we have observed and participated in the emerging real spot activity, full scale diversions, STS (ship-to-ship) operations and opening of new markets in South America and Asia, not to mention the impact that the Fukushima tragedy had on market dynamics.
However, whilst the market’s complexity and inter-connectivity has been increasing year on year, its size – in absolute terms – has not matched the growth of the fleet. Based on various sources, the global production of LNG remained flat in 2011-13 in the 253-259mt range. Based on our expectations of the addition of new project volumes, 2014 will remain tight and only from 2015 onwards will we start seeing the impact of Australian – and from 2017 - US volumes.
By 2018 we expect global production to exceed 350mt. Does it mean strengthening of the freight market after 2014 (widely anticipated to be a shallow year)? Not necessarily. If South American demand remains strong, Australian volumes may displace Atlantic and Middle Eastern volumes in Asia in 2015-16, thus reducing the utilization of the global fleet and delaying the turnaround by several years.
Growth No 3: Technical and personnel solutions
Reflecting on the kind of vessels we dealt with only a few years ago, it’s amazing to see the current diversity in LNG shipping technologies and the breakthroughs in propulsion and containment systems, with the resultant gains in economic and ecological efficiency of LNG vessels. Now that we’re being guaranteed boil-off rates below 0.1%/day and fuel consumption at Service Speed below 100mt/day HFOE, have we found the Holy Grail? Or will we see further reductions in net shipping costs delivered by the creative shipbuilders and their customers?
Arguably, the achieved improvements – if confirmed in actual operations – should satisfy demanding LNG customers for many years to come, until we see another evolution or revolution in technology.
This high technology needs be operated properly and safely by well-trained, well-paid and loyal officers and ratings. It remains to be seen whether ship owners have invested sufficiently in people whilst pursuing technological advances and attractive charters. GM&T – along with other commercial users of LNG vessels – is seeking clarity from ship owners about their manning strategies.
This 3G growth is with us and it’s not going away. It is up to us how we adjust to these changes.