Spate of deals for new LNG ships seen despite rising prices, long waiting time

There has been a flurry of deals for new LNG carriers this year despite a long waiting time, choked shipyards, concerns over emissions and an exponential increase in purchase prices, market participants and analysts said.

The interest in zero carbon emitting fuels is not a deterrent now for ordering LNG ships, London-based consultancy, Maritime Strategies International, or MSI's Managing Director, Adam Kent said on the sidelines of the Sea Asia 2023 conference in Singapore.

German power producer, Energie Baden-Württemberg AG, or EnBw, has recently chartered four new build LNG carriers for a duration ranging between 12 and 20 years from Japan's NYK, LNG brokers said. While EnBw and NYK could not be immediately reached for comment but sources both attending the conference and outside, tracking such deals, said that the delivery of ships will be in four years from now and the chartering rate is more than $90,000/day.

Large volumes of LNG are expected to come onstream over the next few years and this is driving up the orders for ships to move cargoes, a senior executive with an international shipping brokerage added.

So far, orders for 20 new LNG carriers, worth a total of over $5 billion, have been placed globally this year, mostly from South Korean shipyards, according to shipping industry estimates. These ships are likely to be delivered by 2027, the estimates showed.

LNG ships for 2027 delivery are sought after in conjunction with actual gas production which will be ready in four years, the executive said.

The difficult part is that while the ships are manufactured in accordance with the deadline, but the landside infrastructure and gas production get delayed beyond the original schedule, Kent said.

As a result, there are "too many ships", and medium-term earnings of LNG owners are likely to "come off" though they will rebound when the greenfield LNG trains do commence production, he said.

He cited the example of a massive LNG project in Qatar which was likely to be operational by 2027 and had triggered a wave of around 80 orders to manufacture LNG carriers.

The delivery of some of these ships eventually got staggered in line with change in schedule of putting the landside Qatari production in place.

Nevertheless, this has not deterred LNG producers, buyers, and ship owners to join hands for placing orders for new ships.

According to brokers, the four NYK ships chartered by EnBW were ordered for around $257 million each from South Korea's Hyundai Samho, which is around 13% higher year on year, though the four-year waiting time for delivery remains same. Hyundai Samho executives could not be immediately reached for comment.

Other aspects

The participants at the Sea Asia conference said that there is still uncertainty over both, the volume of renewable fuels such as hydrogen and ammonia which will be available over the next decade and the number of ships that will use them. They pointed out that it is in this backdrop that LNG is enjoying a "first mover advantage" even though it is not a zero-emission fuel.

Meanwhile, the green fuel supply does not align with demand, Bo Cerup Simonsen, Chief Executive Officer, Maersk Mc-Kinney Moller Center for Zero Carbon Shipping said at the conference in the context of the availability of methane, methanol, and ammonia. The shipbuilding orderbook is much bigger than the actual supply of these fuels needed to service and move these ships, Simonsen said.

A lot of ships are now being built with LNG dual fuel capability, he said.

This comes even though LNG spot prices skyrocketed last year, reflecting the impact of the Russia-Ukraine war. The Platts JKM, the benchmark price for spot LNG in Northeast Asia, averaged around $33.98/MMBtu in 2022, surging from about $18.60/MMBtu in 2021.

There is a need to establish the necessary shipbuilding capacity to "future proof" the global fleet with multi fuel compliance and energy efficiency, Simonsen added.

According to S&P Global Commodity Insights, LNG's share in the total global marine fuel mix is estimated to be 7.8% in its 2030 reference case, while it is estimated to reach in 12% in its 2050 reference case and hit 32% in its 2050 higher alternative fuel uptake case.

"For LNG, the most popular alternative fuel to date, the newbuilding orders in 2021 and 2022 will more than double the fleet in service upon delivery," global classification society DNV said in a statement April 25.

In case of LNG, some of the pressure on traditional shipyards being choked with orders may be addressed as at least five yards in China have commenced manufacturing LNG carriers after obtaining a few orders, MSI's Kent added without giving details.

This implies that the world may not have to be heavily dependent on South Korea to meet the demand to manufacture LNG carriers, he said.

A shipyard based in Turkey and attending Sea Asia told S&P Global that they were planning to foray into LNG carrier new builds as there was a strong interest although price competition from Chinese and South Korean shipyards was still a concern.

Regulations are being "more and more stringent," but fuel availability, technology and infrastructure will influence fuel choices, said Mike Watt, Director, Innovation Centre of Alternative Renewable Energy, Bureau Veritas Marine & Offshore.

It is better availability and infrastructure, which is currently giving LNG an edge and reflects on the latest spate of orders, market participants added.