- Shortage of supply vessels threaten LNG market in Asia
- High charter rates have been attributed to a surge in gas demand from China
- LNG sales have been on a steady rise as natural gas is being exported on a full-scale in recent years
The LNG market is driven by demand for Asian countries but a shortage of transport vessels is causing a major hurdle.
Shortage of vessels
As the demand for LNG shipments to China is steadily growing as the country increases its consumption of eco-friendly natural gas, the supply of ships is not able to keep pace with growing demand for spot charters.
Spot charter rates for LNG carriers with a tank capacity of 150,000-170,000 cubic meters stood at $190,000 per day range in November, five times higher than in early May. The market environment has changed considerably since 2015-2016 when the rates were around $20,000-30,000 per day amid anxiety about a glut of vessels.
Is China responsible for this issue?
The major reason behind high charter rates has been identified as a surge in gas demand in China. In a drive to reduce serious air pollution, China is rapidly switching from coal to natural gas for power generation with energy companies and trading houses in China securing LNG carriers earlier to import LNG stably over a long-term basis.
Moreover, other countries in Asia are also turning towards the consumption of natural gas. In 2018, Bangladesh began importing LNG and the Philippines also revealed plans to build its first LNG import terminal by investing more than $700 million.
LNG vessel stats
About 600 LNG ships are currently in use and about 40 new vessels are expected to go into service in 2019. However, most of the vessels are chartered exclusively for new projects under long-term contracts and only a limited number of them flow into the spot charter market.
Increase in spot LNG sales
The spot LNG sales are on a steady rise as natural gas, including American shale gas, which does not necessarily involve long-term contracts, has come to be exported on a full-scale over the past several years. LNG trading practices that have been rigid and characterized by long-term contracts covering a period of over 10 years are changing, but the insufficient transportation infrastructure, or carrying vessels, will become an obstacle.
Energy research firm Bloomberg New Energy Finance estimates that global LNG demand will grow to 450 million tons by 2030, from 284 million tons in 2017, with Asia driving the growth.
The International Energy Agency highlighted in its recent report that the risk of a lack of timely investment in the LNG carrier fleet could pose a threat to market development and security of supply, which could materialize even earlier than the risk of insufficient liquefaction capacity.
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Source: NIKKEI ASIAN REVIEW