- Greek shipowners have been on a spending spree, ordering LNG carriers at South Korean shipyards at a rapid-fire pace.
- The fleet investments are being driven by increasing LNG demand, which rose globally from 288M tonnes to 313M tonnes last year, a 9% growth.
- GasLog Ltd has undertaken a newbuild program that includes eight LNG carriers at Samsung Heavy Industries (SHI), ranging in capacity from 174,000 m3 to 180,000 m3.
- In 2014, Endesa signed an agreement to purchase 2Bn m3 per year of LNG from the US company Cheniere Energy from Corpus Christi, Texas over the next 20 years.
- GasLog also secured a 12-year, fixed-term charter with Japan’s LNG Marine Transport Limited, the principal LNG shipping entity of Japan’s JERA Co, Inc.
GasLog Warsaw is one of eight LNG carriers being built by GasLog to meet an anticipated shortfall in shipping capacity based on an article published by LNG Shipping World.
With LNG demand booming, Greek shipowners have been on a spending spree, ordering LNG carriers at South Korean shipyards at a rapid-fire pace. None have been more aggressive than Peter Livanos-led GasLog Ltd, which has seen the value of its fleet climb by almost 19% in a 12-month period, from US$2.7Bn to US$3.2Bn, according to UK-based VesselsValue.
The fleet investments are being driven by increasing LNG demand, which rose globally from 288M tonnes to 313M tonnes last year, a 9% growth. Among the top 10 LNG importing countries, demand grew by 30 mta year-on-year (YoY) from 2017 to 2018.
Increase in shipping capacity
NYSE-listed GasLog pointed out in a presentation to investors earlier this year that growth in LNG demand continues to require incremental shipping capacity. A big driver for LNG carrier capacity will be US exports of LNG, which support a shipping multiplier in excess of historical levels.
GasLog says that since the Sabine Pass start-up, approximately 1.8 ships have been needed for each 1 mta of US LNG supply, as compared to a historical global average shipping multiplier of 1.3. US LNG exports have driven tonne mile demand higher. This is particularly important since 60% of the 73 mta of new liquefaction capacity is expected to come online by 2023 is in the US. Based on these fundamentals, there is going to be a tightening of the LNG shipping market.
Is eight enough?
In light of the increased LNG shipping demand, GasLog Ltd has undertaken a newbuild program that includes eight LNG carriers at Samsung Heavy Industries (SHI), ranging in capacity from 174,000 m3 to 180,000 m3.
Among the largest capacity vessels on order is the GasLog Warsaw, due for delivery in July. Previously uncommitted, GasLog Warsaw will commence an eight-year fixed-term charter with Spanish utility company Endesa SA starting in May 2021. The charter can be extended with two six-year options.
Generation of attractive returns
Commenting on the GasLog Warsaw charter, GasLog chief executive Paul Wogan says the vessel would be available to other customers during a period of expected strong LNG carrier demand prior to the commencement of the term charter to Endesa. He says the combination of initial spot exposure and a fixed-term charter to Endesa is “expected to generate attractive returns for GasLog shareholders”. He points out that GasLog Warsaw will be available during a period when the spot market is expected to be strong, during winter seasons in the northern hemisphere in 2019/2020 and 2020/2021.
Endesa chief executive José Bogas says: “Contracting the GasLog Warsaw on long-term charter represents another important step in delivering a flexible and competitive LNG carrier solution to service our contracted LNG volumes over the next 20 years.”
Contract terms of Endesa
Once it comes under charter to Endesa, GasLog Warsaw will transport LNG from the US Gulf Coast to Spain. In 2014, Endesa signed an agreement to purchase 2Bn m3 per year of LNG from the US company Cheniere Energy from Corpus Christi, Texas over the next 20 years.
Endesa has also chartered Adriano Knutsen, an LNG carrier with a capacity of 180,000 m3 owned by Norway’s Knutsen OAS and under construction at South Korea’s Hyundai Heavy Industries (HHI). It will transport LNG from Corpus Christi under a seven-year charter agreement, once it is delivered in Q3 2019.
Keeping transportation costs down
Once completed, GasLog Warsaw will have an overall length of 297 m, a beam of 47 m and a depth of 26.2 m. Among its key transportation technologies are its four Mark III Flex Plus cargo containment tanks that are expected to have a boil-off rate (BOR) of 0.07%, providing sufficient capacity to hold LNG volumes equivalent to Spain’s total daily demand in one voyage.
An efficient propulsion system will also be critical to keeping LNG transportation costs down. The ship will have an onboard, partial re-liquefaction system that can reduce its gas consumption, allowing it to select the type of fuel it will use, either burning 100% natural gas or low-sulphur fuel oil.
Back in 2014, GasLog was one of the first shipowners to order low-speed, two-stroke WinGD X-DF dual-fuel engines for its LNG carriers. WinGD’s X-DF engines employ lower-rated speeds to reduce both fuel consumption and wear while maintaining power outputs comparable to their predecessors. The X-DF dual-fuel version uses LNG delivered to the engine as a low-pressure gas.
Reduction in CO2 emissions
The X-DF technology is based on the lean-burn Otto cycle, in which a compressed lean air-gas mixture is ignited through the injection of a small amount of liquid pilot fuel. Burning LNG as compared to more carbon-intensive fossil fuels can reduce CO2 emissions by 30%.
GasLog feels that the combination of its LNG carriers’ low-speed, two-stroke (LSTS) WinGD X-DF engine technology and low BOR will “produce an extremely competitive transportation cost that should make it particularly attractive to potential charterers.”
All eight of GasLog’s newbuilds under construction at SHI will have LSTS propulsion.
Following the commencement of GasLog Warsaw’s eight-year charter to Endesa, GasLog Partners LP will have the right to acquire the LNG carrier under an agreement between GasLog and GasLog Partners.
GasLog also secured a 12-year, fixed-term charter with Japan’s LNG Marine Transport Limited, the principal LNG shipping entity of Japan’s JERA Co, Inc, for an as-yet-unnamed sister vessel to the GasLog Warsaw that will be delivered in April 2020 by SHI.
SHI recently delivered another new GasLog LNG carrier, the GasLog Gladstone, arriving on its maiden voyage at the Port of Gladstone in Australia. The 174,000 m3 GasLog Gladstone is operating under a 10-year charter to a wholly owned subsidiary of Royal Dutch Shell Plc. It loaded its first cargo of LNG from Shell Australia’s Curtis Island two-train LNG facility in Queensland in April.
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