Liquefied natural gas vessel owners are basking in an environment where spot rates are the highest in four years and environmental rules are only strengthening the positive outlook. With more projects coming onstream over the next few years, creating transport needs, companies are very bullish on the sector.
TIGHTER environmental regulations for shipping is helping liquefied natural gas demand, leaving shipowners bullish on the long-term prospects.
"The International Maritime Organization is fantastic for LNG. It will be helpful for LNG bunkering and floating, storage, regasification unit opportunities," said Golar LNG's head of investor relations Stuart Buchanan. "It is a material contributor to demand for LNG."
With more projects coming onstream in the coming years, demand for transportation will grow, delegates at a Capital Link forum in London were told.
Incremental capacity from places like Qatar will lead to positives for shipping and the terminal side, Hoegh LNG Partners chief executive Richard Tyrrell said.Qatar Petroleum has just this week committed to building a fourth new liquefaction train on top of three new trains already planned, boosting the country's future LNG production capacity to 110m tonnes a year.
The positive outlook was further supported by energy consultancy group Wood Mackenzie where analysts content that now is a good time in the cost cycle to invest in a new project.
"There are likely to be economies of scale from developing a bigger project," the consultancy's research director for global gas and LNG supply Giles Farrer said in a statement. "These economies of scale will make what is already the most competitive new LNG project worldwide even cheaper.”
Many projects in the US are also being developed, which will help with tonne-miles, as demand centres will mainly be in population growth areas in Asia.
Flex LNG, which expects average sailing distances to rise to 4,609 nautical miles in 2021 from 4,140 miles in 2018, is thus bullish on the sector.
Chief executive Oystein Kalleklev said in a presentation that 90 newbuilding orders are due for delivery from now until 2021, and given an expected start-up of production of 95.6m tonnes per year through to 2022, there will be a deficit of 40 vessels.
According to Awilco LNG's chief executive Jon Skule Storheill, there has been greater newbuilding contracting this year, with 35 orders placed.
He was surprised by the speculative orders and new entrants, saying it would be better to have long-term charterers in place first.
"The experience of private equity has been horrible," he said.
GasLog's chief financial officer Alastair Maxwell said that ordering may however be curbed as newbuilding prices were starting to tick up again.
Spot rates have already reached the highest level in four years, quoted at $95,000 per day, with some suggesting fixtures at more than $100,000 per day.