As spot rates for LNG carriers rise north of US$150,000 a day in a booming demand for capacity, three of the sector’s leading companies are about to launch a 16-vessel shipowning group named The Cool Company that aims to raise funds from Norwegian investors.
Golar, Awilco and Greece’s TMS Cardiff are working together to create what Awilco has advised the Oslo stock exchange would be a consolidated “LNG shipping structure”, in effect, a flotation. The aim is reportedly to launch the company before the end of 2018.
So far however, the parties have played their cards close to their chest. Awilco has refused to comment and Golar only briefly referred to the discussions in its Q3 report. The purpose of the structure, the company said, was “to allow LNG shipping investors more direct exposure to the LNG shipping market,” adding that it had made “some progress” in the discussions in Q3.
It is clear that the parties are moving quickly to capitalise on stratospheric – and probably continuing – charter rates, especially for the tri-fuel diesel-electric ships (tfde) they would throw into the pool. According to Golar’s latest report to shareholders, the group expects time charter equivalent earnings of US$85,000-95,000 for its 11 tfde-propelled vessels in Q4 2018, with immediate impact on the bottom line.
“For every US$10,000 increase in time charter equivalent earnings, EBITDA from Golar’s 11 vessels trading in the spot market will increase by approximately US$40M a year,” the company reports. “Spot rates in excess of US$100,000 are now routinely being achieved for tfde vessels, with some vessels being fixed on short-duration voyages at substantially higher rates.”
The sharp rise in rates has caught most forecasters by surprise. As Golar noted “Illustrative economics of shipping-rate scenarios that only a few months ago may have appeared ambitious are beginning to materialise.”
The reason is rising LNG production and tonne miles combined with a season increase in trading activity that left spare carriers in short supply. And, as the number of newbuild deliveries fell, rates applying in the Pacific basin exceeded those in the Atlantic for the first time in four years.
The proposed structure – or flotation – is also based on predictions of a continuing shortfall of suitable vessels. With LNG trade forecast to grow by 10% a year, rising to around 388M tonnes in 2020, the demand per tonne mile is due to increase by more than 40% by then, according to industry analysts. Leading brokers expect a shortfall of 30-40 vessels.
In fact, there is already a shortage. According to Golar, it is no longer possible to order a vessel for delivery before 2021. In the first nine months of this year, 38 new LNG carriers were delivered, with another 13 due for delivery before the end of the year.
The International Energy Agency has also weighed into the shortfall issue by urging the industry to order new vessels in case the LNG carrier fleet is not big enough to meet supply.