Charter worries for LNG ships ahoy

THE LNG shipping industry has been warned to reconsider further speculative orders of LNG ships, which could face uncertain employment opportunities when delivered in a few years.

A latest report by Wood Mackenzie found that while near-term prospects remained good for the LNG shipping industry, the danger was that ships ordered in today's rising market were likely to be delivered into a declining freight market with limited employment opportunities.

Wood Mackenzie senior LNG shipping analyst Andrew Buckland said 45 new LNG ships had been ordered so far this year compared to just five in 2010. He said most of the new orders were on a speculative basis.

"Ships ordered now which will be delivered around 2014-2015 have no guarantee that new supply projects will choose to charter these vessels rather than order their own purpose-built ships," he said.

The boom in new orders is due to a steep increase in LNG charter rates, which have more than trebled between the summer of 2010 and 2011 from under $US30,000 per day to $100,000 per day.

The rise in charter rates is a result of a drop in new ship deliveries coinciding with the start-up of new liquefaction capacity, stronger LNG demand, the redirection of some LNG ship capacity to use as floating regasification terminals, and the rise in suboptimal shipping utilisation.

"In the short to medium term, we expect significant growth in Asian demand will be met by increased trade from the Middle East and Atlantic basin, which will further tighten the shipping market," Buckland said.

"The Pacific basin is expected to be tightest at 2014, requiring over 40MMtpa of incremental LNG. However at this juncture, we forecast shorter-haul Intra-Pacific trade to begin displacing long-haul Atlantic to Pacific LNG trade, as new projects come online."

According to Wood Mackenzie, the shipping market will loosen and charter rates will drop when the recent ship orders are delivered and once new LNG supply projects in the Pacific Basin come on stream.

Supply from Australia's LNG projects would displace the need for long-haul Atlantic supply while Qatari LNG supply would be increased towards Asian markets as more buyers sign long-term contracts.

"Freight rates are expected to continue rising and could go considerably higher in near-term. However, an expected decline in long-haul LNG trades and the possible preference for purpose-built vessels by some new LNG projects, implies that if the recent wave of speculative LNG ship orders were to continue they would risk uncertain employment upon delivery," Buckland added.

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