Mitsui OSK Lines is a big player in LNG with even bigger ambitions. The Japanese company, ranked second only to Bermuda-based Teekay LNG, aims to expand its fleet to 120 LNG carriers by spring 2020 and to invest US$5 billion in growing its LNG business.
MOL is involved with some 66 LNG carriers and has nearly 30 vessels under construction, including one floating storage and regasification unit (FSRU) – and is well on its way to achieving its goals. It will take delivery of five to eight newbuildings a year to 2018.
The group’s Steer For 2020 strategy aims to grow its LNG and offshore businesses so that they make up more than a quarter of the portfolio, up from 9 per cent now, scaling back exposure to container and dry bulk shipping.
MOL’s policy is to book new carriers against specific contracts.
Vessels booked so far will carry LNG from Freeport LNG, Cove Point and Cameron LNG in the US, from Gorgon and Australia-Pacific LNG in Australia, from Papua New Guinea and from Russia’s Yamal LNG.
Here, MOL has ordered three 172,000m3, DFDE-powered ice-class carriers from Daewoo Shipbuilding & Marine Engineering in South Korea.
“If all the newbuildings we have ordered are delivered by 2018, we will have a fleet of nearly 100 vessels,” says MOL board member and managing executive officer LNG/offshore Takeshi Hashimoto. “It all depends on how many older vessels we sell or scrap.
“To have 120 vessels by 2020 sounds aggressive and we are not sure we can definitely reach that number by then. But we will reach that figure soon, whether that’s by 2021 or 2022.
“We are determined to be number one in LNG shipping.”
Much depends on the timescale for offshore LNG projects in east Africa, where research company BMI predicted recently that LNG production in Tanzania and Mozambique is unlikely to start before 2020.
“Estimates suggest that Mozambique will need more than 20 vessels to carry its LNG to market,” Mr Hashimoto says. “Our target is to order between five and eight ships for Mozambique but our strategy is built around projects and their timings; we will not order speculative tonnage.”
MOL must balance its wish to expand against firm contracts with shifting demand.
Asia’s big utilities, which previously fixed supply contracts for 20-30 years, are considering shorter, more keenly priced deals.
They are also looking to sell surplus LNG to third parties under more open trading terms from new export projects in the US in particular, tapping arbitrage opportunities in Europe, South America and smaller emerging markets.
Mr Hashimoto says MOL is working on the premise that 60-70 per cent of its LNG will be fixed to long-term contracts in future, the rest comprising shorter-term and diverted cargoes.
“One reason we will definitely need the size of fleet that we’re talking about is to create the kind of flexibility we will need,” he says.
“There are many opportunities now to diversify – although that also makes it more difficult to define the shipping capacity that we will need. We may also need to charter vessels for times when we need to add capacity to maintain that flexibility.”
As a shipping company, MOL cannot develop the LNG market, he says.
“But our customers are changing their behaviour as many US projects are giving the buyer more flexibility in their terms and conditions. The buyer can now be the cargo holder and so is free to trade that cargo wherever demand may lie.
“As market requirements become more flexible, our customers will need minimum tonnage. It’s a challenge and we have to provide them with a solution.
“One idea is that instead of a long-term charter we provide a contract of affreightment (COA), fixed to the customer’s minimum required number of cargoes with a big fleet to provide two, three or four vessels, depending on what the customer needs.
“To avoid unemployment, we will need to establish a good network, involving several of our customers.”
Unlike compatriot NYK, MOL has no ambitions to develop upstream and midstream LNG projects and feels that shipping is what it does best – particularly given today’s low oil prices and slowing project development.
Instead, it wants to offer its expertise as a shipping partner to joint ventures and consortia developing offshore LNG units, to operate FSRU import and floating LNG (FLNG) export projects under long-term management contracts.
This also means that, rather than convert ageing LNG carriers to FSRUs or FLNGs, MOL prefers to sell older tonnage for others to convert. “We have realised that it’s more expensive than we thought to convert carriers into offshore units,” Mr Hashimoto says.
The lone FSRU in MOL’s orderbook is chartered to Engie and its project partner Marubeni for deployment at GNL del Plata off Montevideo, Uruguay from late 2016. The 263,000mᶟ unit will be the largest of its kind, at 345m in length long and 55 metres wide, able to regasify 4 million tonnes of LNG a year (mta).
“We hope to fix two or three more FSRU projects,” Mr Hashimoto says. “But we approach this differently to the European shipowners – we are not going to order units on a speculative basis.”
Similarly, MOL sees opportunity in FLNG projects – “That’s my personal dream,” Mr Hashimoto says – but only as a consortium member, avoiding such projects’ massive capital investment costs, to act as shipping partner to energy majors and trading houses.
Here, progress will be slow as long as low oil prices continue to deter the energy majors from new exploration and their associated start-up costs.
One of MOL’s biggest challenges is to find skilled and gas-qualified crew for its fast-growing fleet. Each new ship will need some 50 LNG-trained seafarers, which equals some 2,000 additional crew.
MOL has founded partnerships with training bodies in the Philippines, India and Montenegro and is retraining seafarers on its tankers to work on LNG carriers. It also plans to work with third-party shipmanagement firms.
Another challenge is uncertainty over future LNG demand, both at home in Japan and in China, the overseas market on which it has pinned most hope.
Japan is restarting its nuclear reactors, having shut them down after the Fukushima incident.
One legacy of that event is that many Japanese people now question nuclear safety. Mr Hashimoto says this could thwart government plans to generate up to a quarter of the country’s energy from nuclear power.
If Chinese demand is increasingly difficult to predict, it will definitely turn to gas to reduce its reliance on coal.
And meanwhile, MOL sees new opportunity in emerging markets such as India, Southeast Asia and Latin America. “All these regions have their issues, but what they all have in common is a shortage of electricity,” Mr Hashimoto concludes.