Galway Group Knowledge Sharing Sessions

LNG Shipping Market Trends

Sud Haldar

www.galwaygroup.com

Agenda
Introduction to LNG trade and Shipping
How is demand of LNG Carriers being created?
How are we meeting this demand?
How successfully are we meeting this demand?
What can we predict about the future?

Introduction to LNG trade and Shipping

LNG trade
A brief history of LNG trading and evolution

1st tanker
shipment of LNG
( Lake Charles,
USA Canvey Island,
UK)

1958

1964

1st commercial
trade to deliver
Algerian gas to
the UK
and France

Development of
Atlantic LNG
market
(mainly Europe
and the US)

19691975

1975 1990

LNG trade shifted

to Pacific with
South Korea and
Taiwan joining
Japan as
importers

Atlantic Basin
increased in Size
(UK, France,
Spain and US),
boosted export
from Qatar,
Nigeria, Trinidad
etc..
19952005

2006
-2014

LNG trade
increased swiftly
to reach to 239
MT in 2014

How is the demand for LNG Carriers being created?

Natural Gas production and Trade

Global Trade of natural gas has been increasing at 4% as compared to production
which is increasing at 2.3% CAGR since 2006.
Natural Gas trade share has been increasing at 4% CAGR

LNG Share increased by 5% since 2006

400.00
LNG + Pipeline Trade
(Bcf/day)
350.00

300.00

LNG Trade
(Bcf/day)

Pipeline Trade
(bcf/day)

100%

102.7396.73
99.5699.88
93.44
78.6884.70
74.99

250.00 72.35

Bcf/day 200.00

90%
80%
70%
60%
50%

150.00

40%
100.00

30%
20%

50.00

10%
0.00

2006 2007 2008 2009 2010 2011 2012 2013 2014

0%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: GIIGNL, Statistics of World Energy, BP

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LNG Market Trade Structure

Long-term vs Short-term/Spot LNG trade, and with current market over-supplied,
more spot trading is expected in the near future
Spot/Short Term LNG vs Long Term LNG

For top five LNG import countries spot is ~ 30%

35%

300
LNG Trade

Spot/Short term
30%

250

100
90

Long-term

25%
80

200

70

20%

MT of LNG 150

Percentage of Total Trade

15%

100

60

63

MT of50
LNG
40

10%
30
50

5%

10
0

123456789

0%

29

20

11
3
Taiwan

15

4
China

India

26
9
Korea

Japan

Source: GIIGNL
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How are we meeting this demand?

LNG Carriers
The Technology, The Capacity, and the Value representation

Shipping accounts for 15% to 25% of total LNG value chain cost
Most of the LNG ships (carriers) are owned by independent third parties rather
than the projects
Adds another level of complexity in the LNG value chain (contracts, macroeconomic events etc)
Propulsion System (what technology is used to drive these
ships?)

Steam Turbine
Dual Fuel Diesel Electric
Tri-Fuel Diesel Electric
Slow Speed Diesel with BOG re-liquefaction
M-Type, Electronically controlled, gas injection

Containment System (What technology is used to store the LNG

on board?)
Moss Rosenberg Design
Membrane Tank System

Fuel Consumption (How much fuel is required to run these carriers?)

Steam Turbine; 175 tonnes/day; Capacity: <150,000 cubic
meter
DFDE/TFDE; 130 tonnes/day; Capacity: 150,000 to 180,000
cubic meter
ME-GI; 110 tonnes/day; Capacity: 150,000 to 180,000 cubic
meter
Source: IGU, Galway
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Current Ship Market and Type

The LNG market is dominated by membrane type ships, and majority of vessels
are in 125k to 180k cubic meter capacity range
Containment System Share
Membrane type containment system in LNG vessels is
more popular and comprise 76% of the existing fleet

24%

Future fleet of LNG vessels primarily consists of

Membrane type Vessels
76%

Membrane

The BOG in the current containment system averages

around 0.15% per day, however, newer vessels
have achieved a rate as low as 0.08% per day

Moss

Ships by Capacity

Most of the vessels in the existing LNG fleet are in the

range of 125,000 to 180,000 cubic meters, with
average ship capacity around 164,000 Cubic Meter
The Q-Flex (210,000-217,000 cm) and Q-Max (261,700266,000 cm) LNG carriers that make up the Qatari QClass offer the largest available capacities
Around 55% of existing LNG fleet is less than 10
years old
The capacity trend in the LNG fleet is upwards, and
around 87% of 23 vessels ordered in 2015, were in
170,000 to 180,000 cubic meter size

Source: IGU
10

LNG Flow in the current market

Asia remained the biggest importer of LNG, mostly supplied by Qatar in middle
east, and the shipping market remains active in the Pacific Basin region

Source: IGU

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How successfully are we meeting this demand?

12

An Illustrative Example
Balance Equation => (Total Ship Capacity) x (Number of Trips in a Year) = Total LNG Trade

Total Shipping Capacity Calculation

Average Ship Capacity = 164,000 Cubic Meter (Given)
Average LNG Density = 460 Kg/Cubic Meter (Assumed)
Per Ship Capacity In MT = Density x Volume

Important Factors that depicts

shipping Supply/Demand Balance
1. Average Ship Capacity

164,000 x 460 / (1,000 x 1,000,000) = 0.075MT/ Per Ship

Total Number of Ships = 424 (Given)
Total Capacity = 0.075 x 424 => 32 MT

2. Total Number of Ships

Total Trips Calculation

4. Speed of the Ships

Average Voyage Distance = 7640 Nautical Miles (Given)

Average Ship Speed = 16 Nautical Miles an Hour (Assumed)
Days for one round trip = 2 x 7640/(16 x 24) = 40 days

5. Total LNG Trade

Round Trips in a year = 365/40

Number of Trips per year = 10

6. Maximum Loading Capacity of

98.5%

Total Trips Calculation

Total LNG trade Should be = 10 x 32 = 320 MT

3. Average Voyage Distance

Additional components excluded

7. Boil off Gas loss: 0.10%/day

8. Ballast BOG fuel

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Current Shipping Market Trends

The Drivers behind the current flush in the shipping charter rates

The perceived demand for LNG,

and new LNG projects coming
online in future, resulted in 44
speculative LNG vessels, which
flushed the market
Not only the new vessels failed
to find a home, the existing
vessels, which concluded their
long-term contract also failed
to acquire new contracts
Reduced spot purchase in
2015, in Asian markets and
additional volumes available in
the pacific basin reduced the
call for long distance shipping
Delays in completion of LNG
projects and shut-in of projects
like Angola resulted in
additional vessels availability in
the short-term market

Source: IGU

Long-term charter rate of LNG

Ships, however, remains at the
historical level of ~USD
75,000/day
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Shipping Construction Costs and Canal Tolls

Construction cost of different ships and tolls in Suez and Panama Canals

Typical Price of an LNG Ship varied from

$1100/Cubic meter of capacity to $1750/Cubic
meter Capacity
Average price of a 170,000 to 180,000 cubic
meter ship remained consisted in the range of
$ 200 220 million
Demand for innovative vessels, specially Trifuel Diesel Electric Propulsion system pushed
the prices to $ 1750/ Cubic meter in 2014
(Yamal LNG Icebreakers)

Panama

Suez

Suez
Average
for these
vessels
Canaldelivery
Toll is time
calculated
using
height and
remained
30 to to
50calculate
months timeline
length
of theintanker
Cargo Space
(cubic meter)
A moss type LNG carrier pays 25% to 30%
higher fees than membrane type LNGC
because of extra height. Accordingly there was
a discount of 35% on LNG vessels. With more
membrane vessels now, the discount has been
Panama
The tariff will be calculated
reducedCanal
to 25%
on Cargo volume (cubic meter)
No additional discounts are offered because
of the measurement structure

Source: IGU
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Future LNG capacity and Shipping Trends

LNG capacity will come online slower than expected and new orders will keep
market flushed
Liquefaction Capacity Trends
As of January 2016, 141.5 MTPA of projects
were under construction, primarily in the
United States and Australia

Existing

Oil price continues to remain low, and more

and more LNG projects have either delayed
FID, or have cancelled the projects
The slow-down of the Chinese market, lower
demand from Japan and development of new
gas fields, offset by new LNG import countries
makes the short-term prediction difficult
The order-book and Contracting Trends
As of January 2016, 146 LNG carriers were in
the order-book with deliveries stretching to
2022
About 75% of the vessels in the order-book are
associated with charters that extend beyond a
year.
By contrast, 46 vessels are open for charter
upon delivery

Source: IGU & Marine Money

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What can we predict about the future?

17

Key Takeaways

1
Slow Charter rate
recovery
With the orderbook representing
around 40% of the
existing fleet, this
state of affairs is
unprecedented and
this oversupply will
impact the LNG
shipping spot
market at least till
end of the decade

2
FLNG/FSRU
Conversion
To create value
from the older
ships, they will be
considered for
conversion into
FSRUs or FLNGs
and to be even
used as units for
floating storage
purposes. Special
interest in such
conversion has
been seen with
Golar LNG Partners

3
Slowdown in Ship Order
The expected
delay in the project
FIDs and flushed
LNG market will
see reduced new
ship order. In 2015,
only 16 vessels
have
been ordered with
ties to US offtake,
compared with 33
in only the fourth
quarter of 2014.

4
Vessel Efficiency
narrowed by Oil
price
With the deflation of oil
prices, the cost spread
between the propulsion
systems narrowed,
diminishing the
competitive advantage
of the more fuelefficient vessels
If and when, this oil
price increase, along
with the refined product
prices, the charter rate
difference in the
propulsion systems will
be apparent
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Thank-you
For additional queries, please contact Irfan :)

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