New LNG vessel deliveries could be delayed on long market

The number of new LNG carriers delivered to the market has soared this year, leaving the shipping industry to question whether last winter’s rise in charter rates can be repeated in the coming years.

Despite some companies agreeing in advance to delay the delivery of carriers to next year, 2018 is expected to become the busiest year on record for new LNG ship supply.

A total of 20 vessels have come to the market in the first quarter of this year. This is double what was delivered over the first quarter in the past three years, data collected by ICIS showed.

Out of 20 newly-delivered vessels, four were constructed in Japan, two in China, with the rest in South Korea.

Japanese utilities have asked yards to slow down deliveries so that vessels are delivered at the same time as when the new US LNG export plants, Freeport and Cameron, start production, according to sources at Asian and European ship owners.

At least one enquiry was made to a South Korean shipyard as well.

The delay would reduce the number of uncommitted vessels on the market that could be available for spot charters.

Up to five vessels have also been fixed on multi-month charters to bridge the gap with the project start-ups, according to fourth quarter 2017 results of ship owner Flex LNG published earlier this year.

Energy consultancy Wood Mackenzie believes that 61 vessels are currently scheduled for delivery in 2018.

Ship owners said that more than 10 of them will be delayed by as much as eight months, with deliveries starting from the end of this year.

But the market will also see some new ships arrive that were built in the past two years and have not yet been delivered.

“In recent years a lot of ships scheduled for delivery have been delayed due to overcapacity in the LNG shipping market and low charter rates,” said Andrew Buckland, LNG shipping and trade principal analyst at Wood Mackenzie.

Out of 20 new ships delivered in the first quarter, three vessels were built in 2017.

These new deliveries may keep LNG charter rates depressed throughout 2018, despite the potential delay with the delivery of vessels for the Freeport and Cameron projects.

The bearish trend may also persist as some LNG production projects that have not yet made a final investment decision could already be in negotiations to order ships for their projects, according to a shipbroker.

New orders pick up

Orders for new LNG ships have picked up this year, partially reacting to high prompt charter rates this winter, which has given renewed confidence in the sector to ship owners, Buckland said.

“Last year, there were 19 orders overall, while we are already approaching this number this year,” he said.

Samsung Heavy Industries said last week, referring to Clarksons Research, that 194 LNG carriers are to be ordered within the next five years, including 37 this year.

The construction of LNG vessels is also cheaper than before, with strong competition between the shipyards for new orders, according to a ship owner.

There is spare shipbuilding capacity in South Korea and China.

Expectations for next winter’s charter rates are still strong among some ship owners, however. The new US LNG projects are expected to absorb ships from the market, with long-haul journeys supporting the rates.

“We expect that winter [shipping] demand will be strong this year and charterers will start thinking of shipping earlier in the year to catch lower rates,” one ship owner said.

“We think that rates will go up in late summer and certainly in September.” ekaterina.kravtsova@icis.com