LNG vessel ordering over the past 2-3 years suggests that at least 65 new vessels are due to start trading over the next 4-5 years. Although LNG trade will continue to expand, significant oversupply is likely 2005-06.
Such is the scale of expected trade growth, however, that 33 large vessels in addition to those already on order will need to be delivered by the end of the decade to match vessel demand growth.
These are some of the findings of a new report from independent research company Ocean Shipping Consultants Ltd., UK.
More than $5 billion of additional newbuilding vessel investment will be needed by 2007-08, says the study, to bring the fleet up to the required volume by 2010, with a further requirement of about $9.6 billion over the following 5 years.
Trading patterns will change significantly over the next decade, as new markets and suppliers emerge, while the LNG carrier fleet will obtain new propulsion and cargo-containment systems.
Trade, markets to 2015
After the slowing of global LNG trade expansion witnessed over 2001-02, the trade aggregate will advance by an average 6.5%/year over the near- term, with an acceleration to almost 7.5% in the second half of the decade.
In absolute terms, the trade will increase to more than 175 billion cu m in 2005, 256 billion cu m in 2010, and 318 billion cu m in 2015, from slightly less than 146 billion cu m in 2002. After doubling in volume since 1990, therefore, the world LNG trade will increase by more than 75% to 2010, and overall by 118% in the future study period.
Of the world trade total of slightly less than 146 billion cu m in 2002, East Asian import markets (mainly Japan and South Korea) accounted for almost 104 billion cu m.
This regional total will increase to more than 148 billion cu m by 2010 and 168 billion cu m by 2015.
Imports elsewhere in Asia will begin in India near-term and in Thailand during the later years of this decade. By 2010, says the study, the import total for these markets will be almost 14 billion cu m/year and rise to 26 billion cu m by 2015.
Several Western European markets will begin or expand LNG imports by 2015, with the UK the most notable. Aggregate regional import volumes will increase to almost 75 billion cu m by 2010 and 95 billion cu m by 2015 from slightly more than 36 billion cu m in 2002, a 112% growth by 2010 and 162% for the period overall.
In Latin America, there are prospects for import development by 2015 in Mexico, Jamaica, and Brazil, says the study. Each of these new markets will feature in world trade by the end of the decade, with the regional total amounting to 3.4 billion cu m, rising to 4.7 billion cu m by 2015.
LNG exports
The study says that Southeast Asian suppliers will continue to dominate world LNG trade movements, accounting for about 85 billion cu m in 2010, rising to more than 95 billion cu m by 2015, from a 2002 level of 62 billion cu m. This expansion derives primarily from increased liquefaction throughput at Indonesian and Malaysian terminals.
For Middle East exports, the study forecasts it to advance to 69.5 billion cu m in 2010 and 83 billion cu m in 2015 from the 32.5 billion cu m of 2002.
Supplies from the region are set to feature in almost all new or expanded import-market development through 2015, says the study, mainly through higher export volumes for Oman and Qatar, but also involving the beginning of shipments from Iran and Yemen.
Shipments from Australia will increase sharply with a number of export projects planned. Annual exports will advance to more than 22 billion cu m by 2010 and to almost 27 billion cu m in 2015 from the 10.5 billion cu m of 2002.
Similar end-period volumes will flow from West Africa, primarily Nigeria, but also including from Angola towards 2015 from a 2002 level of less than 7.5 billion cu m.
Exports of about 25 billion cu m/year are likely for Central and South Americas, where current export volumes approximate 4.5 billion cu m but are due to increase markedly through the ongoing expansion of the Trinidad project, and the initiation of LNG exports from Venezuela later this decade, says the study.
Elsewhere, despite the start up of exports from Egypt, total North African LNG exports will likely increase far less rapidly than for exporters, reflecting mainly the likely development of extra trans-Mediterranean pipeline capacity.
The Sakhalin project in eastern Russia is set to witness extensive LNG export volumes in the later years up to 2015, while export growth associated with Norwegian LNG will be more evenly spread throughout the whole study period.
Fleet, shipping requirements
As of early May, there were 65 vessels on order, representing total cargo capacity of some 8.9 million cu m. The world orderbook represented an additional 61% of LNG capacity due to begin trading over the next 4-5 years.
Given the age profile of the current fleet, says the OCS study, the volume of vessel scrapping over the near-term is likely to continue to be low, although there will inevitably be higher levels of vessel demolition later nearer 2015.
From the current level of 14.6 million cu m, the required LNG fleet will reach more than 27.0 million cu m by 2010, rising to more than 32.2 million cu m by 2015. To handle anticipated trade volumes and patterns, therefore, the LNG fleet will need to expand by more than 12.4 million cu m (85%) out to 2010 and by 17.6 million cu m (120%) in the overall period to 2015, says the study.
A total of 4.6 million cu m of new tonnage (in addition to what is currently on order) will be needed in the second half of this decade to match the expected development of trade volumes and patterns over the interim period. For 2010-15, a total of 8.7 million cu m of new fleet capacity will be required.
For the future period, a total of 13.3 million cu m of new LNG capacity will be required, in addition to the 8.9 million cu m of new capacity currently on order at Asian and European yards.
There will be a requirement for the equivalent of a total of 98 large vessels (of around 138,000-cu m capacity) to be delivered by 2010, with an extra 63 vessels by 2015.
With 65 vessels already on order, this implies a need for 33 new orders to be delivered in the remainder of the current decade, says the OCS study, and overall 96 for the future period.
At current newbuilding prices, the forecast vessel requirements translate to $5.1 billion of extra new orders to be placed before 2007-08, and a further $9.6 billion in the following half-decade.
By 2005, if all new tonnage is delivered according to schedule, the actual fleet will equate to some 2.1 million cu m or 11.5% in excess of the required level.
The net implication is for near term over-supply of LNG carriers, with market conditions improving later in the decade in the face of expanding trade volumes and lower ordering volumes.
One of the main features of LNG trade and shipping development since the end of the 1990s has been the rise of spot market and short-term contract movements, in a sector traditionally consisting of long-term (25-year) contracts.
Trade volumes associated with such trading are estimated at accounting for approximately 3% of total trade in 1999, rising to around 5% in 2000 and an estimated 9% in 2002.
For the near-term at least, all of the factors likely to fund continued spot market activity will feature, with the increasing desire for more flexibility in supply contracts continuing to also favor shorter-term commitments.
For the longer term, says the study, the high levels of investment required for LNG projects will likely dictate the continuing dominance of long-term contracts within the LNG sector, although there will be an increasing trend towards flexibility in supply contracts.