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Opinion

By CS LNG, Jan 7 2019 12:23PM

1. SHIP SHORTAGE THREATENS ASIAN LNG MARKET GROWTH

In the growing market for LNG, driven mainly by Asian demand, a shortage of transport vessels could become a bottleneck. While demand for LNG shipments to China is steadily growing as the country increases its consumption of eco-friendly natural gas, the supply of ships is not keeping pace with growing demand for spot charters. Spot charter rates for LNG carriers with a tank capacity of 150,000-170,000 cu. meters stood at the $190,000 per day range in November, five times higher than in early May. The market environment has changed considerably since 2015-2016, when the rates were around $20,000-30,000 per day amid anxiety about a glut of vessels. "We did not expect that we would run short of vessels so quickly," said a person in charge of LNG carriers at a major Japanese shipping company. A major reason behind the high charter rates is a surge in gas demand in China. In a drive to reduce serious air pollution, China is rapidly switching from coal to natural gas for power generation. Energy companies and trading houses in China are securing LNG carriers earlier to import LNG stably over the long term. Other countries in Asia are also turning to the consumption of natural gas. In 2018, Bangladesh began importing LNG and the Philippines also revealed plans to build its first LNG import terminal by investing more than $700 million. Energy research firm Bloomberg New Energy Finance estimates that global LNG demand will grow to 450 million tons by 2030, from 284 million tons in 2017, with Asia driving the growth. About 600 LNG ships are in use worldwide, and about 40 new vessels are expected to go into service in 2019. However, according to Nippon Yusen, most of the vessels are chartered exclusively for new projects under long-term contracts and only a limited number of them flow into the spot charter market. Spot LNG sales are increasing as natural gas, including American shale gas, which does not necessarily involve long-term contracts, has come to be exported on a full-scale over the past several years. LNG trading practices that have been rigid and characterized by long-term contracts covering a period of over 10 years are changing, but the insufficient transportation infrastructure, or carrying vessels, will become an obstacle. The International Energy Agency said in a recent report: "The risk of a lack of timely investment in the LNG carrier fleet could pose a threat to market development and security of supply, which could materialize even earlier than the risk of insufficient liquefaction capacity."

[Source: NIKKEI 02/01/2019]


CS LNG comment: The Japanese owners have been noticeably absent in speculative ship ordering ever since Fukushima in 2011 leaving the speculation to the new Greek owners. Whilst the spot rates did spike towards the end of 2018 most of that was down to the floating storage plays undertaken by the traders rather than the increased demand in China. There is still a lot of ‘slack’ in the fleet due to various inefficiencies. But unless the industry is prepared to pay reasonable rates to owners why should they risk more orders?

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2. WHY TANZANIA OFFICIALS ARE IN NO HURRY TO FINALISE GAS DEALS

The fear among Tanzanian government officials of repeating past mistakes in mining pacts has been cited as the main cause of delays in starting negotiations with companies seeking to extract LNG in the south. The companies and the government are yet to sign a commercial framework agreement, with Dar es Salaam saying it needs time to make the right decisions for the benefit of the country. Officials are cautious not to bind the government to deals that may prove costly or loss-making in the future. Energy Minister Dr Medard Kalemani said the government must be "content with the kind of agreements that we as a country are going into before signing the deal." Equinor, a Norwegian company with interests in the sector has said it is ready to start talks with the Dar es Salaam administration on developing an LNG project based on a deepwater offshore discovery. The framework for the proposed $30 billion LNG plant is expected to outline and define all the attributes of the project, who is involved, the prices and all appropriate allocations. Gas firms say concrete investment decisions are on hold, awaiting the outcome of the negotiations between them and the government. Equinor Tanzania has been given the green light to proceed with negotiations with the government for the development of Block 2 offshore Tanzania. "The host government agreement (HGA) negotiations between Equinor and the government will set out the long-term framework for the LNG plant, which is not a part of the original production sharing agreement, but the decision to build the LNG plant has not yet been reached," said senior vice president and country manager for Equinor Tanzania, Mette H. Ottøy. "We have progressed our planning to a point where this is the next logical step and we are very happy that the government of Tanzania agrees with this.

[Source: The East African 01/01/2019]


CS LNG comment: 'Decide in haste repent at leisure’ is no doubt a phrase at the forefront of the Tanzania government. No doubt they are slightly suspicious of the Vikings from Equinor!

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3. EXXON WINS BUYERS FOR ROVUMA LNG PROJECT OFF MOZAMBIQUE

Exxon Mobil says it has secured offtake commitments for the Rovuma LNG offshore Mozambique, paving the way for a final investment decision in 2019 and production to begin in 2024. XOM's joint venture partners in the Area 4 exploration and production concession include Eni and China's CNPC with a total 70% interest; XOM will head the development of the LNG facilities and Eni will lead the upstream work. "These commitments are an important step forward for the Rovuma LNG project and provide a solid foundation for securing project financing," says Eni's chief gas and LNG marketing and power officer.

[Source: Seeking Alpha 02/01/2019]


CS LNG comment: A little misleading this headline! The equity stakeholders have agreed to lift their equity gas which is not quite the same as finding buyers! Either way a good announcement and one that no doubt rattles Anadarko and their MzLNG project.

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By CS LNG, Jan 7 2019 10:06AM

1. KOREAN SHIPBUILDERS BENEFIT FROM LNG CARRIER ORDERS AMID BACKING FOR LNG-POWERED SHIPS

South Korean shipbuilders are maintaining their dominance in the liquefied natural gas carrier construction sector in the face of some competition from yards in China and Japan. New orders placed for LNG carriers so far in 2018 have favoured the experienced shipbuilders in Korea, which have signed contracts for 80 percent of ships ordered, according to industry data. Korean shipyards signed contracts with owners around the world for 56 LNG carriers in total so far during 2018. This is out of the global total of LNG carrier newbuild orders of 65 made by shipping fleet owners and some new entrants to the market. French maritime storage technology company GTT has also been favoured by the Korean yards to supply the essential tank storage technology for the vessels. Many of the LNG carriers ordered have had capacity of around 174,000 cubic metres. This is regarded as the optimum size in terms of economics for using waterways such as the Panama Canal and operartions between the Atlantic and Pacific Basins. Among the Korean shipyard, the most dominant in the LNG market has been Hyundai Heavy Industries, the world's largest shipbuilder in terms of orders. Hyundai has signed agreements this year to build 25 LNG carriers for leading owners. The other two large shipbuilders, Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering, have received 14 and 17 orders respectively. Analysts say that the healthy market for LNG newbuilds has enabled the Korean shipbuilders to meet their 2018 sales targets. The Hyundai LNG order book is valued at US$13.4 billion, surpassing its orders target. The Korean yards are also expanding their expertise to become leaders in constructing commercial vessels powered by LNG to meet new global emission restrictions. The Ministry of Trade, Industry and Energy has recently confirmed plans to back orders for around 140 LNG-powered vessels. The Koreans are planning to support private companies to place orders for the ships using LNG as fuel, including at least two ships in 2019 and more in an accelerating programme lasting through 2025.The government and the private sector also plan to invest 2.8 trillion Korean won ($2.5Bln) by 2025 to build infrastructure for bunkering to support LNG-powered ships visiting Korean ports.

[Source: LNG Journal 19/12/2018]


CS LNG comment: Against all of the odds 56 orders have been placed in 2018 which can only be good news for the charterers going forward. What is interesting is that despite these orders the pricing is holding steady which no doubt encourages more ordering! But whilst Korea may be grabbing the headlines for the conventional ships they are losing out to Chinese yards for the smaller ships.

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2. ARCTIC LNG CONTRACT GOES TO SAIPEM

Arctic LNG 2 has awarded a joint venture (JV) of Saipem and the Turkey-based oil and gas services company Renaissance a 2.2 billion-euro onshore engineering and construction contract in Russia, Saipem reported Wednesday. According to Saipem, the 2.2 billion-euro contract calls for the construction of three 6.6-million ton per annum (mtpa) liquefied natural gas (LNG) trains installed on concrete gravity-based structures and LNG storage facilities with 687,000 cubic meters of capacity. Novatek JSPC and Ekropromstroy Ltd. own 60-percent and 40-percent interests, respectively, in the project, which will be built in the western part of Gydan Peninsula in the Tazovsky District in Russia’s Yamal-Nenets autonomous administrative region. The project relies on the hydrocarbon resource of the Utrenneye field, whose reserves (Russian classification) total nearly 2 billion cubic meters of natural gas and 105 million tons of liquids, according to Novatek’s website. Saipem noted that the Arctic LNG 2 contract forms part of a strategic partnership deal that it signed with Novatek in 2016 for LNG-related activities. Each company in the 50/50 Saipem-Renaissance JV will receive approximately 1.1 billion euro for the project. “The awarding of this contract demonstrates how Saipem is fully integrated into the process of energy transition and represents a further success in the high added value LNG sector in which we have been operating for many years and in which, in the recent past, we have obtained important contracts,” Saipem CEO Stefano Cao said in a written statement emailed to Rigzone. “Finally, the signing of this contract reinforces the presence of Saipem in Russia, a country in which the company has an important track record in the realization of both onshore and offshore infrastructure.”

[Source: Rigzone 19/12/2018]


CS LNG comment: Yamal may have been a success story by coming on time and under budget but that could well be reversed with Saipem getting involved in Arctic LNG 2: have they ever delivered a project on time and on budget? Toscana being a good example.

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3. MOL, UNIPER PRESS ON WITH GERMANY’S 1ST FSRU PROJECT

Japanese shipping giant Mitsui O.S.K. Lines (MOL) has teamed up with Düsseldorf-based Uniper SE to develop a Floating Storage and Regasification Unit (FSRU) at Uniper site in Wilhelmshaven, Germany. The FSRU has a planned send-out capacity of 10 bcm/a and an LNG storage capacity of 263,000 cbm. As informed, the facility could be in operation as early as the second half of 2022. Under the terms of the deal, MOL intends to own, operate and finance the FSRU, while Uniper will serve as the project developer, working closely with the relevant authorities to receive the permits for the operation of the facility and to gather interest for regasification capacity from additional market participants. Wilhelmshaven has been chosen as it is the only German deep-water port and can be reached without any tidal constraints. In addition, there is already required infrastructure in place. The port is closely located to the existing pipeline and gas storage infrastructure. MOL said that the FSRU will be designed to allow for the loading of small scale barges to enable the use of LNG as marine fuel. Further, onward transportation of LNG on trucks will be possible. The project is Germany’s first LNG terminal which is aimed at strengthening the security of gas supply in Germany and diversify gas supplies, which is also being pursued at the political level in Germany and Europe. In addition to the agreement in respect of the FSRU Wilhelmshaven, Uniper and MOL entered into a binding transportation agreement. Under the agreement MOL will provide Uniper with shipping capacity equivalent to a 180,000 m³ LNG carrier. The agreement will commence in December 2020. Uniper said it intends to use the additional shipping capacity to optimize LNG volumes sourced from Freeport, U.S., and to further leverage its expanding LNG trading activities. Already in 2015 Uniper contracted approx. 0.9 mtpa of US LNG exports. The supply contract has a duration of 20 years.

[Source: World Maritime News 18/12/2018]


CS LNG comment: Congratulations to MOL.

But for Uniper it is sending a message to the market that any future tends could just be a bench marking exercise to negotiate a sensible rate from MOL who is clearly their chosen partner for shipping who will now have 3 units with Uniper.

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By CS LNG, Dec 10 2018 09:15AM

1. THE WORLD CROWNED NEW LNG EXPORT AND IMPORT CHAMPS IN NOVEMBER

The reigns of Qatar as the world’s biggest seller of liquefied natural gas and Japan as the biggest buyer have come to an end. Well, for one month at least. In November, Australia was the biggest exporter and China the biggest importer, according to Kpler, an energy research firm that focuses on ship-tracking data. Australia shipped out 6.55 million tons during the month, compared to 6.27 million for Qatar. The start-up of new Australian projects like Inpex Corp.’s Ichthys LNG have boosted the country’s production capacity this year as it nears the end of a $200 billion construction boom. China took in 6.56 million tons in November, a 43 percent jump from October, while Japan imported 6.39 million tons, Kpler said in an emailed report. China’s LNG imports have surged in the past two years amid government efforts to clear urban smog by replacing coal boilers with natural gas burners. Chinese buyers also wanted to build up stockpiles of the fuel ahead of winter heating season to avoid a repeat of last year’s gas shortages. The changes underscore the shifting dynamics in the LNG industry. Among producers, Qatar is undertaking a major expansion project as it competes with growing output from Australia, North America and Russia. Global import growth is expected to be dominated by China and new, smaller markets such as Pakistan and Thailand as traditional buyers like Japan see their needs plateau. [Source: Bloomberg 06/12/2018]


CS LNG comment: Bloomberg has to be American as only Americans can relate to the “world” as US centric! Just look at the baseball World Series where only US teams compete! LNG has finally gone global, but does it really matter who is the biggest LNG producer? The article should be focused on who is the cheapest producer.

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2. KAWASAKI TARGETS ASIA WITH FLOATING POWER PLANTS USING LNG AS FUEL AND COSTING $175M Kawasaki Heavy Industries of Japan has completed the development of a floating, gas-fired power plant to operate with LNG deliveries and aimed at Southeast Asia with its many islands and isolated communities unable to receive pipeline gas supplies. Kawasaki is aiming to sell the ships to customers such as power companies in the fast-growing Asia economies where infrastructure remains underdeveloped and at a time when LNG supplies are plentiful in the region. “The vessel is the first of its kind able to generate 100,000 kilowatts of electricity,” stated Kawasaki. The power plant is designed to accept LNG supplies and is on a barge measuring about 100 metres in length. “The barge is equipped with generators, fuel tanks to store the liquefied natural gas that fires them, and power distribution equipment,” said Kawasaki. The vessel will be assembled at a shipyard, towed to where it is needed and anchored to the sea floor. “By putting the ship near where consumers are, power transmission distances can be shortened,” the company pointed out. Equipped with a high-efficiency gas turbine, the ship can generate between 30,000 kW and 160,000 kW of electricity, enough to supply power to between 100,000 and 160,000 homes. “It will sell for around 20 billion yen ($175 million). Kawasaki Heavy's system will include a small fueling vessel, taking advantage of the company's skills in building LNG tankers,” said Kawasaki. “The gas-fired, floating power plant is 10 percent more efficient than a comparably sized coal-powered or oil-fired plant,” it added. Kawasaki said the plants required about four years each to build, though they can go online more quickly than land-based facilities because it requires almost no civil engineering. “This will allow utilities to recoup their costs more quickly,” the company added. [Source: LNG Journal 06/12/2018]


CS LNG comment: The future of LNG? For sure: we have gone from discharging liquid from conventional ships to discharging gas from FSRU so why not electricity to markets that only want power not gas.

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3. NEWBUILDS DRIVE DOWN SPOT RATES FOR LNG CARRIERS

Charter rates for LNG tankers are beginning to fall from 2018 highs that reached as much as US$195,000 a day, as more vessels come down the slipway and expand the global fleet. In a sharp drop, rates had declined at the end of November to around US$160,000 a day, according to Reuters. One shipbroker said the spot rate in early December for a newbuild vessel was as low as US$140,000 a day because more vessels were becoming available on the charter market. And it’s possible the rate could fall further, industry sources said, with up to 10 LNG carriers coming on the spot charter market during December as floating cargoes are unloaded. Rates are also volatile, with big troughs between the highs and lows. In June, for example, they ran at around US$90,000 a day in the Atlantic basin and at US$70,000 a day in the Pacific, according to energy consultant Wood Mackenzie. LNG charter rates closely reflect the spot LNG trade, usually following the price of the super-cooled gas. As Reuters explained, “[the price] has fallen since September due to sluggish demand from Asian buyers.” There is also a close relationship between charter rates and tanker movements. Reuters added “Due to inflated shipping rates, not many spot Atlantic cargoes travelled east in recent months. Some companies had to arrange cargo swaps in order to reduce costs.” And explaining the fewer movements lately between the Atlantic and the Pacific basin, one LNG trader told Reuters “Shipping rates are very high [so] there is not much room for work at the moment.” However, it is expected that most of the demand for LNG shipments in early 2019 will come out of Asia Pacific where ExxonMobil, BHP and Australia Pacific LNG will be chartering vessels to load up from Australia-based plants and sail for gas-hungry Asian markets, in particular China which has become the world’s biggest buyer of LNG. Although charter rates have been falling, they are still well above those applying in 2017. In Q1 2017 they averaged below US$100,000 a day. Meantime the global fleet of LNG carriers will continue to grow. At last count, in mid-September, no less than 33 new vessels had been ordered in 2018 so far, according to Wood Mackenzie’s principal analyst for LNG shipping and trade, Andrew Buckland. That compares with 19 in 2017 and just six in 2016. New vessels are hitting the water faster than ever before. At the end of Q3 2018, 36 tankers had been added to the global fleet of LNG carriers, with three being scrapped. Another 22 are due for delivery before the end of 2018. Sounding a cautionary note, Mr Buckland said “Owners need to be careful they don’t over-order. There is still a huge number of ships ordered in the 2011-2014 LNG newbuilding boom to be delivered to the fleet. And there is a long history of new ships arriving before new supply.” On the bright side, he added that there is a new wave of LNG supply projects coming on stream between now and 2020, most of which will require the gas to be shipped. Also, terminals are opening at a rapid rate, for instance in China, which will facilitate deliveries. The steady stream of orders for new LNG carriers is largely attributable to falling construction prices. “In real terms newbuilding prices have never been lower [and they] look even more attractive when you consider how much more you get for your money with the latest ship designs,” Mr Buckland pointed out. “The temptation for owners is to order sooner rather than later while the newbuilding price remains low.” The newbuilds are so much more advanced in terms of design and technology that they are making ships ordered even three or four years ago outdated, Mr Buckland explained. That is especially true of propulsion. The new generation of gas-injection, slow-speed engines now offers fuel savings of over 20 tonnes a day compared with even the latest dual-fuel diesel and tri-fuel diesel-electric engines. The savings over the older steam-powered ships are even bigger – up to 75 tonnes a day. [Source: LNG World Shipping 06/12/2018]


CS LNG comment: What goes up has to come down and that has always been the case for shipping rates. And do we need inane comments from WoodMac that the stellar rates have fallen. Those rates were unsustainable and anyone with any LNG experience knew that. A more sensible comment from WoodMac should have been that new builds drive down values of older tonnage.