Qatar LNG vessel orders to take up shipyard capacity

Plans by state-owned Qatar Petroleum (QP) to order at least 60 LNG carriers at South Korean shipyards may take up much of the shipyards' LNG newbuilding capacity, delegates heard at the Capital Link New York Maritime Forum yesterday.

Some shipowners may have elected to order LNG vessels in recent months in order to secure shipyard slots ahead of Qatar Petroleum placing its large order, shipowner Flex LNG's chief financial officer Harald Gurvin said. Only a few shipyards, most of them in South Korea, can build LNG vessels.

The Qatari order could also contribute to a higher newbuilding price than at present, in particular if it is associated with a rise in orders from other shipping segments, Gurvin said. Recent orders for new LNG carriers were placed at $188mn but LNG newbuilding prices could inch towards $200mn, he said. This was up from a newbuilding price of around $183.5mn in late 2017-early 2018, according to data from shipbroker Fearnley.

Qatar authorities unveiled initial plans for a 60-LNG carrier order in January but orders could exceed 100 vessels. QP plans to expand the Ras Laffan LNG facility to 110mn t/yr from 77mn t/yr at present. And QP and ExxonMobil reached a final investment decision earlier this year to build the 15.6mn t/yr Golden Pass LNG project in Texas, in which QP will hold a 70pc stake. Equity production from the Golden Pass project and expanded production in Qatar will likely boost QP's shipping needs in the coming years. And the firm may wish to replace some of its older vessels with steam turbine propulsions, Gurvin said.

Risk of LNG shipping market being "overbuilt" wanes

Long-term charter agreements have now been secured for much of the LNG vessel orderbook, reducing the risk of the LNG shipping market being "overbuilt" in the early 2020s, delegates heard.

Numerous vessels on order have now had long-term charters agreed, with fewer uncommitted vessels on order, shipowner Gaslog Partners' Andrew Orekar said. Gaslog had last year warned of a risk of the LNG shipping market being "overbuilt" following brisk orders for new LNG carriers.

Strong spot LNG charter rates prompted brisk orders of LNG carriers last year. And shipowners seeking higher-efficiency vessels may have elected to place early orders ahead of technical replacement of their fleets, Flex LNG's Gurvin also said. LNG carriers with steam turbine propulsions are commercially harder to charter because of their lower fuel efficiency compared with more recent propulsion technologies, he also said. A number of steam turbine vessels under long-term charter agreements were approaching the end of their contracted employment and "will struggle to compete" with more efficient ships, Gurvin said.

But "methane slip" is a feature of dual fuel diesel electric (DFDE) and tri-fuel diesel electric (TFDE) vessels, despite the higher fuel efficiency compared with steam turbine vessels, Gurvin said. Two-stroke vessels offer an alternative to both sets of issues. And vessels with full reliquefaction systems offered even better environmental credentials, but Flex LNG's Gurvin estimated the added cost of such technologies at $6mn. Shipowners investing in such vessels would likely seek long-term charters to maximise potential earning days for the vessels, instead of placing these on the spot market, he said.

But a strong LNG orderbook has likely taken up much of the world's LNG shipyard capacity. Delivery times are now close to three years and a shipowner ordering an LNG carrier now could expect delivery in September 2022, Gurvin said.