The recent run of commissions for LNG carriers and explosion in LNG importing terminal construction around the world may not be enough to guarantee supply in coming years, according to the International Energy Agency’s latest Global Gas Security Review.
The review expressed uncertainty about future shipping capacity which is “a precondition to maintaining LNG market flexibility”.
Although the size of the LNG tanker fleet stood at 467 in mid-2018 and has grown faster than the global merchant fleet in the last several years, the review points out global seaborne LNG trade remains a niche market, vulnerable to investment decisions outside its control.
Also, contrary to the earlier view that LNG carriers were ‘floating pipelines’ dedicated to specific plants, in the current buyers’ market more and more shipment contracts are for short-term and even spot deliveries.
Further, the number of orders for carriers has flattened out—at least until a late-year surge. As of mid-2018, noted the review, the newbuild orderbook stood at 104 vessels, equivalent to a 29% increase in total fleet tonnage. The IEA said that is about half the average level of the past decade.
“Considering that LNGC construction takes between two and three years, fleet capacity is expected to remain almost flat in 2020 (and possibly 2022) unless new orders are placed in the coming months,” said the IEA. Fortunately, the rush of late-2018 orders may have allayed some of the agency’s concerns.
As others point out, the absence of adequate LNG infrastructure, particularly in the availability of bunker fuel, has slowed the expansion of the LNG carrier fleet as well as the growth in the number of LNG-fuelled vessels. That is because demand for tankers is closely related to the requirement for LNG as marine fuel.
Currently, there are only 120 LNG-fuelled ships on the global market, excluding LNG carriers. That represents less than 0.2% of the total fleet, according to a study by the Gas Exporting Countries Forum (GECF) released in late December.
As the study’s author, the GECF’s analyst for gas transportation and storage, Aydar Shakirov, pointed out, until recently LNG served as a bunker fuel predominantly on LNG carriers as boil-off gas. And it is only in the last few years that non-LNG carriers started using the gas as a bunker fuel.
But that is all about to change. The number of LNG-fuelled vessels, excepting LNG tankers, is forecast to double to around 240 by 2020. Inevitably, the fleet expansion will lead to a much bigger supply of bunker fuel. According to the study, global consumption of LNG bunker fuel will increase to 33M tonnes a year (mta). At that point LNG will account for about 13% of the global bunker fuel market.
Breakthroughs in demand for marine LNG – and hence for tankers as the agents of supply – are coming thick and fast. They include CMA CGM’s bold decision to order nine LNG-fuelled container ships, a run of newbuild orders for LNG-powered cruise ships as well as for oil tankers. “If other major companies start to follow suit, this will be a key indication that LNG will be a significant fuel in marine transport in the long term,” concluded the study.
In the interim though, current gaps in LNG bunkering infrastructure may prove to be a deterrent. “LNG infrastructure, although expanding fast, still remains limited,” warned the GECF’s study. “The routeing possibilities for LNG-fuelled vessels [also] remains limited due to a relatively small number of ports providing LNG bunker fuel.”
Yet analysts such as South Korea’s Kogas institute principal researcher Kidong Kim predict that increasing demand will plug the gaps. “The rapid rise of LNG is driving up LNG tanker traffic and the development of port and regasification facilities,” he said.
For supporting evidence, classification society DNV GL pointed out in its latest Energy Transition Outlook that the Panama Canal, which registered the passing of three LNG tankers in a single day in April – a record, will carry five times the volume of LNG in 2020 as it did in 2017.
And citing Business Monitor International, DNV GL predicted that the transport of gas by sea is expected to exceed transport by pipeline by 2035. “Globally, our Energy Transition Outlook predicts a near-continuous 3% a year increase in seaborne LNG trade – from 282 mta today to 660 mta in 2050,” DNV GL forecast. Much of that expanded traffic will be heading for countries such as China and India that are currently running behind in terms of LNG ports and processing facilities, but catching up fast.
As analysts point out, the adequacy of infrastructure drives seaborne LNG traffic. That is why India envisages the construction of no less than 11 LNG import terminals over the next seven years, giving the country a total of 18.
Other countries are racing to make up for lost ground. In 2005, noted DNV GL, only 15 countries imported LNG. Now there’s nearly 50 – and several other countries are building terminals.
If the IEA is correct though, there may not be enough LNG carriers to service them.