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Fleet over-capacity strategies

LNG in 2010 is one of the fastest growing vessel sectors as global demand for energy shows little sign of diminishing. But capacity outstrips both gas production and demand and is set to do so for much of the coming decade.

Drewry’s Annual LNG Shipping Market Review & Forecast 2010 scrutinises the sector and assesses the options for LNG fleet operators to bring capacity more in line with the markets.

Key topics:

• Market dynamics for LNG trade
• Size, structure and diversity of the LNG fleet
• Latest and projected costs and fleet economics
• LNG outlook – the longer term for the sector

Special feature:

• Over-capacity strategies

1.   Executive summary
     •   Summary
     •   Trade
     •   Fleet
     •   Employment
     •   Costs
     •   Outlook

2.   The gas market and LNG trade
     •   The gas markets
     •   Natural gas
     •   Liquefied natural gas (LNG)
     •   Applications
     •   World primary energy consumption
     •   Natural gas consumption trends
     •   International natural gas reserves
     •   The international natural gas trade
     •   History of LNG
     •   LNG exporters
     •   LNG importers
     •   LNG prices
     •   Seaborne trade
     •   LNG trade outlook

Special feature: Floating LNG solutions
     •   Overview
     •   Floating LNG
     •   Demand Influences
     •   Environmental objections to FLNG
     •   Proposed projects
     •   North America
     •   South and Central America
     •   Barents Sea
     •   North Africa/Mediterranean
     •   West Africa
     •   Middle East
     •   Asia-Pacific
     •   FSRU projects
     •   FLNG projects
     •   Conversion candidates

3.   The LNG fleet
     •   LNG fleet profile and development
     •   Development of the LNG fleet 1964-2009
     •   Deliveries
     •   New orders
     •   Orderbook
     •   Age profile of the LNG fleet
     •   Demolition
     •   Types of LNG carrier
     •   Yards building LNG carriers
     •   Ownership of the LNG fleet
     •   Future LNG fleet

4.   LNG fleet employment and markets
     •   Contracts, existing, planned and potential
     •   The freight market
     •   Vessel tracking analysis

5.   LNG costs and economics
     •   An introduction to ship costs
     •   Capital costs
     •   Operating costs
     •   Operating costs to 2013 – the key issues
     •   Operating costs – LNG-specific issues
     •   Voyage costs
     •   Allocation of LNG shipping costs
     •   LNG shipping revenues
     •   Indicative fully built-up transport costs
     •   Transport costs and project economics
     •   Safety and security

Appendices
     •   Natural gas conversion factors
     •   Natural gas consumption
     •   Natural gas production
     •   Natural gas: proved reserves
     •   Natural gas: trade movements 2008 - by pipeline
     •   LNG trade
     •   LNG shipping
     •   LNG liquefaction plants: existing
     •   LNG liquefaction plants: under construction
     •   LNG liquefaction plants: planned and proposed
     •   FLNGs: planned and proposed
     •   Current LNG receiving terminals
     •   LNG receiving terminals under construction
     •   Planned and proposed LNG receiving terminals
     •   Floating storage and regasification units
     •   LNG fleet listing
     •   LNG orderbook
     •   Current LNG contracts by importing country
     •   Future LNG contracts by importing country
     •   LNG fleet employment in 2009
     •   LNG fleet fixtures
     •   LNG vessels employed in the spot/short term market during 2008

Tables
     •   LNG fleet and orderbook
     •   LNG trade
     •   LNG imports and exports
     •   LNG orderbook and delivery schedule
     •   LNG orderbook by shipyard
     •   Delivery slippages from 2009
     •   Recent LNG contracts
     •   Market activity
     •   Costs
     •   LNG liquefaction capacity
     •   LNG regasification capacity
     •   Delivery schedule 2009-12
     •   Top 10 LNG exporters
     •   Top 10 LNG importers
     •   Top 10 owners – current fleet
     •   Top 10 owners – orderbook
     •   Top 10 yards – No. of LNG ships built
     •   Top 10 yards – orders since 2000
     •   Composition of LNG at various liquefaction plants
     •   World primary energy and gas consumption
     •   Forecast natural gas consumption
     •   Natural gas production
     •   International trade in natural gas, 1970-2009
     •   World LNG trade by exporting countries
     •   LNG liquefaction plants
     •   LNG imports – Americas
     •   LNG imports – Asia and Middle East
     •   LNG import – Europe
     •   Existing regasification plants
     •   Regasification plants under construction and under consideration
     •   USA natural gas imports as LNG
     •   Spanish LNG imports
     •   Japanese LNG imports
     •   South Korean LNG imports
     •   LNG prices
     •   Forecast LNG production capacity
     •   Upcoming liquefaction projects
     •   Proposed CBM based liquefaction projects in Australia
     •   LNG liquefaction capacity
     •   LNG regasification capacity
     •   Gas prices
     •   LNG seaborne trade 1990-2009
     •   LNG trade matrix, 2009
     •   LNG seaborne trade matrix, 2009
     •   FSRU projects
     •   Floating LNG projects
     •   Prospective conversion candidates
     •   LNG fleet development summary
     •   LNG fleet development by size
     •   LNG fleet deliveries
     •   LNG fleet orders
     •   LNG fleet orderbook
     •   LNG fleet size and age profile
     •   LNG fleet deletions
     •   LNG demolition scenarios
     •   Shipyard summary table
     •   Delivery schedule of confirmed orders by yard, 2009-2012
     •   Available yard slots, 2012-2014
     •   LNG fleet ownership summary
     •   LNG future fleet development
     •   LNG future fleet demand
     •   Spot movements by importing region 2009
     •   Spot market by export country
     •   LNG vessels loading, 2009
     •   LNG vessels discharging, 2009
     •   Floating storage economics for a conventional LNG carrier
     •   Vessels available for employment as of 31 March 2010
     •   LNG carrier secondhand sales
     •   LNG carrier newbuilding prices –  125-155,000 cbm
     •   Representative LNGC operating costs, 2005-14
     •   Suez Canal transit dues – LNG carrier, 2010
     •   Suez Canal LNG cargo traffic
     •   Historical and forecast bunker prices
     •   Indicative annual voyage costs
     •   Allocation of LNG shipping costs
     •   LNG time charter rates
     •   Indicative fully built-up transport costs per  annum
     •   Indicative fully built-up transport costs per annum
     •   Indicative fully built-up transport costs per annum by route –
         170,000 cbm vessel size
     •   Indicative fully built-up transport costs per annum by route –
         215,000 cbm vessel size
     •   Indicative new LNG project costs
     •   LNG carrier shipping incidents

Figures
     •   LNG trade development
     •   LNG fleet development
     •   LNG exports
     •   Japanese LNG imports
     •   South Korean LNG imports
     •   USA LNG imports
     •   Spanish LNG imports
     •   Gas and energy prices
     •   Forecast USA net gas imports
     •   Deliveries & deletions
     •   LNG orderbook
     •   Age profile
     •   LNG spot trades
     •   LNG movements and LNG delivered
     •   Freight rates
     •   Newbuilding orders and price
     •   Natural gas and LNG demand, 1970-2009
     •   Energy consumption by fuel type
     •   Forecast energy demand by type
     •   Forecast natural gas demand
     •   Global distribution of gas reserves, 2008
     •   Natural gas production, consumption and world trade
     •   LNG exporters
     •   LNG importers
     •   USA LNG imports
     •   Existing LNG terminals: North America
     •   Planned LNG terminals: North America
     •   LNG terminals: North Europe
     •   European LNG imports
     •   LNG terminals: Japan and South Korea
     •   South Korean LNG imports
     •   Gas prices
     •   LNG trade
     •   Forecasts of USA net LNG imports
     •   USA net LNG import scenarios
     •   World LNG exports, 2009
     •   Shipping demand by exporting countries, 2009
     •   World LNG imports, 2009
     •   Shipping demand by importing countries, 2009
     •   LNG fleet development
     •   LNG fleet by size
     •   LNG deliveries
     •   LNG new orders
     •   LNG orderbook – orderbook and orderbook as % of fleet
     •   LNG orders by containment system and propulsion type
     •   LNG fleet age profile
     •   LNG fleet by containment system
     •   LNG fleet by propulsion system
     •   LNG fleet by country of build
     •   LNG fleet by shipyard
     •   LNG orderbook by shipyard
     •   LNG fleet by owner
     •   LNG orderbook by owner
     •   LNG fleet by flag and class
     •   Forecast LNG fleet
     •   Spot vs. contract, 2009
     •   Spot movements
     •   Growth of short-term trade
     •   Development of spot movements - East and West
     •   Top 10 vessels undertaking multiple  short-term cargo movements
     •   Spot export movements, 2008 and 2009
     •   Spot import movements, 2008 and 2009
     •   LNG movements and LNG delivered
     •   LNG carrier newbuilding prices: 125-155,000 cbm
     •   Quarterly LNG newbuilding prices and orders
     •   Evolution of total operating costs
     •   Operating costs
     •   Bunker prices
     •   Freight rates

LNG Shipping Market Review & Forecast 2010 is unrivalled for breadth, detail and expert commentary. For fleet owners, gas producers and other stakeholders, this Report is the most comprehensive source of LNG business intelligence available anywhere.

Why you should order this Report:

• Headline intelligence for strategic planning with detailed analyses for costs and operational budgeting.
• Fleet profiling – stay right up to date with the fleet size, capacity and structure with latest stats on new builds.
• Trading patterns – the moving picture that has implications for pricing, revenues and manning levels.

Issues taking centre stage in 2010

Supply side management – capacity increased 28% in 2008 and 16.5% in 2009… options including floating storage, regasification, conversion and demolition need to be considered.

Demand – trade growth over the last decade averaged 8.3% and was up 10.2% in 2009 compared with a poor 2008. However, spot/short term trading rates are at their lowest.

Production – record liquefaction capacity was added in 2009 with several LNG production trains commissioned theoretically adding 47.3 million tpa.

Changing trading patterns – new sources of supply and new importers have emerged but the sector is seeing more flexible forms of trading taking place.

Costs – project costs are still expected to fall in the short term but any return to market stability will likely fuel inflation.

Long term growth prospects are positive and, with increasing global demand for energy, LNG will take its place as a mainstream shipping sector. However, an overcapacity issue clouds short and medium term prospects.

Overcapacity is reaching crisis levels for the LNG. Shipowners without long-term employment for their vessels face a difficult period but there are options open to them. Older vessels that have completed long-term contracts are either being converted into Floating Storage and Regasification Units (FSRUs) or at least being tipped as conversion candidates. Some older vessels could be converted into LNG training ships. Others that did not have full-time employment are either trading in the spot market or being used as floating storage. Outside of the box thinking and the combination of shipowners’ desire and the technological competence of shipyards will ultimately decide whether vessels head to a demolition or a conversion yard. Scrapping and layups are certainly options.

Production
LNG production has not grown as quickly as anticipated so much of the new regasification capacity (also a current feature of the sector) will struggle to find gas to utilise.  Some operators are building LNG terminals as an alternative to pipelines. Increased onboard regasification and surplus floating storage have given areas without existing terminals access to LNG far quicker than previously possible… an important structural change to sector dynamics.

Trading
LNG trading patterns are changing with new sources of supply and new importers and more flexible forms of trading. Seasonal demand is playing a part. Kuwait, the latest entrant to the LNG importers’ club, plans to operate its Mina Al Ahmadi GasPort terminal only during summer. On the other hand, countries like the UK and South Korea have increased demand for LNG during winter.

But with rates still being kept in check as the major economies emerge from recession, more competitive pricing has helped LNG cargoes reach a variety of customers with a wide geographical spread. The concept of re-exports gaining popularity among existing importers, the dynamics of the LNG trade could change dramatically in the years to come.

Fleet
During this period of plentiful supply, several vessels dedicated to spot trading joined the fleet; a phenomenon that would have been unimaginable ten years ago.

Newbuild activity evaporated after May 2008, and no new orders were placed for more than one and half years. Whereas fleet operators have the overcapacity issue to deal with, yards face a future of scant or empty orderbooks. South Korean yards currently dominate the orderbook, accounting for 89% of the capacity on order. Since the start of 2007, new orders have largely been restricted to just two yards – Samsung with 14 vessels and Daewoo with 12.

Scrapping has not offered much counterbalance - the first LNG vessel in a decade was scrapped in 2007 and a further four vessels were demolished in 2008. But, there were no confirmed demolitions in 2009, and one was demolished in the first quarter of 2010.

Summary
All in all, the longer term looks good as the LNG sector is growing. More immediately, owners need to deal with over-supply and yards must have the technical capability to convert assets to alternative employment. Operating costs although still falling, will need to be contained as the market recovers. Securing credit has been an issue for owners and will continue if rates fail to rise owing to overcapacity.