LNG freight market to stay oversupplied until mid-2026

Spanish Market: Freight, Natural gas
31/01/25

A rebalancing of the LNG shipping market beyond mid-2026 may hinge on the rate of vessel demolition this year and next, as growth in the global fleet of LNG carriers is on course to outpace the ramp-up in global liquefaction capacity by mid-2026.

LNG shipping capacity continued to outgrow global exports in 2024. The ratio between global LNG exports and operational LNG carriers fell to a multi-year low in the third quarter last year as a result of low scrappage, limited output additions, and seasonally lower LNG output before winter (see chart). Total operational LNG carriers rose to 739 by the end of 2024, up by 9pc on the year, while LNG loadings in the fourth quarter only edged up by 1.4pc on the year.

The ratio between LNG exports and operational LNG carriers is set to rebound from summer 2026, when three of four phases of state-run QatarEnergy's 32mn t/yr North Field East LNG capacity expansion are expected to come on line, and assuming all new additions can ramp up to designed capacity within three months of their respective start. In contrast, any delays would prolong the present oversupply of shipping capacity.

But the capacity balance in the shipping market is unlikely to recover to 2021-23 levels, unless vessel demolition rates pick up to around seven vessels each quarter in 2025, up from eight vessels during the whole of 2024 (see chart). For market dynamics to be similar to those in 2021-23, this ratio would need to be even higher than at that time, given that newbuilds are typically bigger in capacity — meaning fewer vessels are needed to transport the same amount of LNG. Most newbuilds coming into operation in 2024 had a capacity of 174,000m³ or more, compared with the average for the global LNG fleet of 146,000m³ at the end of 2023, according to LNG importers association GIIGNL.

Many market participants had expected demolition rates to accelerate in 2024, especially for the older fleet of steam turbine vessels. Tighter emissions rules from the International Maritime Organisation have put pressure on this part of the LNG fleet, and these smaller vessels have become increasingly incompatible with new and bigger loading berths. The steam turbine fleet has the highest rate of idling. There are roughly 40 steam turbine vessels available in the spot market at present, out of 270 vessels in total, according to shipbrokers and Kpler. In contrast, only around 20 two-stroke vessels are available, out of 370 operational vessels in total.

Slow steam release

The number of vessel demolitions fell short of expectations in 2024 because many shipowners still hoped to sell their steam vessels for conversion, and many expect demolition rates to pick up in 2025 given prevailing low freight rates.

Steam turbine vessels are often bought for conversion into floating storage units (FSUs) or floating storage and regasification units (FSRUs). Buying interest in 2024 was also driven partially by Dubai-based Nur Global Shipping, which acquired a number of ships that were later put under US sanctions for their apparent links with Russia's 19.8mn t/yr Arctic LNG 2 export terminal.

The scrap metal market has seen more supply than demand since early 2022, which has weighed on cost recovery for shipowners from old vessels and even delayed decisions for demolition. The monthly average delivered price for containerised ferrous scrap metal in India — a key area for vessel demolition — has fallen steadily, to $376/t in January from more than $600/t in early 2022, although the current price is still higher than the historical low of $255/t in spring 2020.

But many continue to expect demolition rates to pick up in 2025-27. Shipbroker BRS expects 123 vessels to be scrapped in 2025-27 because almost 75 steam turbine vessels are due to finish their term charters in the coming two years. The current spot freight rate for steam turbine vessels of $2,000-3,000/d is way below their operational cost of around $17,000/d, which may incentivise shipowners to send them to be scrapped.

The present supply of steam turbine vessels at 270 also remains far higher than total conversion demand, although demand for FSUs and FSRUs is expected to increase towards the end of the decade, when LNG supply is poised to increase.

By Xiaoyi Deng

Global LNG exports vs shipping capacity

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20/03/25

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Escoamento de soja causa fila de caminhões em Rondônia

20/03/25

Escoamento de soja causa fila de caminhões em Rondônia

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Brazil central bank raises target rate to 14.25pc

20/03/25

Brazil central bank raises target rate to 14.25pc

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Brazil's soybean outflow causes truck queue in Rondonia

20/03/25

Brazil's soybean outflow causes truck queue in Rondonia

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Global Ports запустил комплекс для навалочных грузов на Балтике

20/03/25

Global Ports запустил комплекс для навалочных грузов на Балтике

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