Norwegian shipowner Hoegh LNG plans to continue focusing on the market for floating storage and regasification units (FSRUs), despite the increasingly important role of freight in the LNG market.
LNG carriers will play an increasingly pivotal role in the LNG market because of the long distance between the core growth markets in Asia and the largest incremental producers in the US and Russia, the company's chief executive Sveinung Stohle told Argus. While most of the incremental LNG demand is set to come from key Asian markets, particularly China and India, planned liquefaction capacity additions in the Asia-Pacific basin are limited, which will increase reliance on long-range deliveries, particularly from the US and Russia, Stohle said.
This has already generated more volatility in charter rates for LNG carriers in recent months. A sharp spike in rates in January was followed by a seasonal decline that was shorter than usual, Stohle said. This has spurred firms to increasingly seek to secure term charter contracts, in a bid to avoid exposure to such sharp fluctuations in rates.
Yet the carrier market remains a 'plan B' for Hoegh LNG, Stohle said. The firm generally does not try to take advantage of sudden and short-lived spikes in spot rates as it considers the stability of cash flow more important, and is only considering term charter contracts lasting 6-12 months to bridge gaps between import projects.
Hoegh has recently secured a new 12-month charter contract for the 170,000m³ Hoegh Esperanza as an LNG carrier, Stohle said. The vessel has been operating seasonally as an FSRU, typically mooring at China's 2.2mn t/yr Tianjin import terminal during winter months, under a term contract with state-controlled CNOOC, which was due to expire at the end of next month.
Negotiations are still ongoing for a longer-term employment of the vessel as an FSRU in Asia after the term contract expires in June 2022. The firm had previously planned to employ the FSRU for the 4mn t/yr Crib Point LNG import project in Australia, but the project was cancelled earlier this month — which "took everybody by surprise", Stohle said.
Hoegh has no immediate plans to build new vessels after completing its newbuilds programme in December 2019, which included 10 new FSRUs. Building new and more efficient facilities remains the preferred option, but the firm will also consider converting old steam turbine carriers for some specific projects in the future, Stohle said, adding that this may only be a desirable solution in particular contexts — for example, where it can connect to the local grid and have access to renewable power, and for smaller projects (200-300MW LNG-to-power projects).
The conversion would in any case require the installation of a new and more efficient power plant, possibly with the use of batteries, as the steam turbine power plants are very inefficient for use in FSRU mode, Stohle said.
New IMO rules introduced last year and the new Energy Efficiency Existing Ship Index (EEXI) regulation, which is expected to be approved next month, will pose a ‘much bigger challenge' for the commercial viability of older steam turbine carriers, which is likely to incentivise more scrappage in the coming years, he said. With steam turbine vessels making up about one third of the global LNG fleet, this may tighten the freight market, although this will largely depend on how quickly new carriers can be built.
Hoegh expects LNG demand to rebound by 4-5pc this year and continue to grow until reaching around 460mn-470mn t/yr by 2025, up from 362mn t in 2020, with possibly another 100mn t/yr of demand added to the market by 2030.
