A recent report by Seatrade Maritime reveals that the LNG shipping industry is heading towards significant overcapacity, with declining demand projected to create a 40% surplus in fleet capacity by 2030. The report, titled “Still Adrift: Updated Assessment of the Global Energy Transition’s Impact on the LNG Shipbuilding Industry,” was published by the Seoul-based Solutions For Our Climate (SFOC) and Berlin’s Climate Analytics (CA). It highlights that concerns about pipeline security, particularly following the 2022 Nord Stream explosions, have contributed to an overexpansion of LNG carriers, while demand in traditional and emerging markets is rapidly declining.
Declining Demand and Growing Overcapacity
According to Dongjae Oh, head of gas at SFOC, traditional LNG markets such as Korea and Japan are seeing a decrease in demand, and emerging markets in Southeast Asia and South Asia are shifting toward renewable energy due to high gas prices and project delays. Oh notes that the gas industry’s efforts to cultivate demand in these regions have been slowed by postponed or shelved financing decisions.
Shipbuilding and Fleet Composition
Athens-based shipbroker Allied reports that the global LNG fleet currently stands at 707 operational carriers, with an additional 384 on order—54% of the existing fleet size. Researcher Chara Georgousi from Allied points out that while demand may increase due to new liquefaction capacity in the U.S. and Qatar, the fleet’s aging composition, with 41% of vessels over 15 years old, indicates a need for replacements in the near future.
Impact on Charter Rates and Market Risks
Charter rates have softened as the fleet expanded by 8% this year, and fewer liquefaction projects than expected have come online. Georgousi warns that LNG tonnage owners should be aware of potential overcapacity risks. However, beyond 2025-2026, new LNG projects may help rebalance the market and support charter rates.
Over-Estimation of Demand
SFOC’s report argues that the LNG industry is over-estimating future demand, using the International Energy Agency (IEA)’s data to support its claims. This over-estimation could lead to a significant fall in demand for LNG carriers from 2025 onward, following a wave of speculative newbuilding orders that were made after Russia’s invasion of Ukraine. Rachel Eunbi Shin from SFOC points out that many of these orders were placed without corresponding charter contracts, which could flood the market and drive down charter rates.
Environmental Concerns and Methane Emissions
Thomas Houlie, a climate and energy policy analyst at CA and one of the report’s authors, raises concerns about the accuracy of methane emission measurements in LNG shipping. He suggests that new methods of measuring methane emissions may reveal higher actual emissions, which could increase the carbon costs of operating LNG vessels. Houlie points to research by Climate Trace, which uses satellite data to better capture real methane emissions from LNG tankers, highlighting that current industry metrics may underestimate the environmental impact.
Conclusion
The report suggests that the LNG shipping industry faces significant challenges, including an overcapacity of vessels and potential underestimation of environmental costs. As demand continues to shift toward renewable energy, LNG carriers may struggle with market imbalances and lower charter rates in the coming years.
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Source: Seatrade Maritime
