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Erwin Cifuentes

Erwin Cifuentes

Erwin Cifuentes is a Contributing Editor for Southern Pulse Info where he focuses on politics, economics and security issues in Latin America and the Caribbean.…

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Long-term Outlook for LNG Shipping is Bright but Vessel Shortage Looms

LNG with tugs

A new report from Drewry Shipping expects the shipping market for liquefied natural gas (LNG) to strengthen in the next few years and warned that the number of vessels may be inadequate to deal with expected demand.

In Drewry’s latest LNG Forecast and cited by LNG World Shipping on Thursday, analysts estimate some 125 million metric tons of new production capacity is currently under construction. The LNG market will likely grow and, thus, more vessels will need to be built to transport more supply around the world.

“As a majority of the supply from plants under construction has been contracted on long-term agreements, it is likely that LNG will be traded, so requiring more vessels,” observed Shresth Sharma, lead LNG shipping analyst for Drewry.

“Despite a widened Panama Canal, new LNG-export capacity due to come online by 2020 will require shipowners to order an additional 65 vessels over this period to meet shipping demand,” Sharma added.

The pressure for LNG shippers to build more vessels becomes stronger when examining the outlook for the market in the commodity. According to Goldman Sachs and the International Energy Agency (IEA), LNG became the world’s second most traded commodity behind oil last year and demand will continue to grow.

The United States began shale gas exports by sea this year and this could challenge coal at power plants in Europe and become affordable in emerging markets, based on the Goldman/IEA information. Furthermore, Energy Aspects expects international LNG export capacity to spike by 45 percent with the U.S. share jumping from nil to 14 percent.

Ironically, LNG shipowners are currently facing an oversupply and have only ordered the construction of four new LNG longbuilding vessels so far this year. Drewry noted that spot rates for dual-fuel diesel-electric (DF-DE) LNG carriers have remained around US$30,000 a day since the second quarter of 2015. This represents an 80 percent drop from the latest peak period in 2012; hence, reflecting strong fleet growth and weak demand for cargo.

By Erwin Cifuentes for Oilprice.com

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