Q&A: LNG Bunker Market Set For Low Prices And Rapid Demand Growth

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  • After the LNG bunker market was shook by Russia’s invasion of Ukraine and skyward prices, it now faces a period of oversupply, low prices and soon a doubling of the global LNG-fuelled fleet.
  • A global gas supply glut will weigh down on LNG prices and create fresh bunker demand from both new and existing vessels.

The LNG bunkering market faces an upswing which will be driven by a notable increase in LNG-fuelled vessels in operation. With 509 operational LNG-fuelled vessels reported until now, and an additional 524 on order, the industry braces itself for significant expansion. Amidst this growth, the dynamics between sellers and buyers could change.

In an interview with ENGINE, Emma Richards argues that a global gas supply glut will weigh down on LNG prices and create fresh bunker demand from both new and existing vessels. She is an associate director of oil and gas at BMI and has over 10 years of experience as an analyst and researcher, with LNG as one of her specialisms.

How are industry players preparing themselves to tackle the expected growth of the LNG bunkering market in the coming years?

The LNG bunkering market is set for rapid expansion over the coming years, with DNV reporting 471 LNG-fuelled vessels operational as of 2023 and another 523 currently on order and set to begin commercial operations within the next five years.

Bunkering infrastructure is already fairly well-established along most major trade routes and industry players are ramping up their spending to cope with the expected increase in demand, via investment in bunkering terminals and ship-to-ship and truck-to-ship LNG bunkering capacity.

Traditional demand centres in North America, Europe and East Asia will continue to pull the lion’s share of capex, but we’re also seeing increased spending in other regions, such as MENA.

As well as individual investments in local facilities, some players are also partnering up, to build out global bunkering networks. This entails strengthening ties across existing hubs, as well as exploring new markets to penetrate along key shipping routes.

As with investments in the LNG sector more broadly, GHG emissions levels are growing in importance and measures to reduce carbon intensity are a common feature of many new projects under development.

Will the extra natural gas production and LNG export capacity that is set to come online in the US and Qatar over the coming years lead to an LNG glut?

Yes, it looks very likely to be the case. Qatar and the US are both set for significant export growth over the next five years, but there’s a whole host of other markets that are also ramping up their exports – Mozambique, Malaysia, Russia, Nigeria, Indonesia and Australia, to name just a few.

We don’t see underlying LNG demand growth being strong enough to absorb these exports in full, so – assuming liquefaction capacity comes online as planned – we’re looking at quite a loose market balance over the mid-to-late 2020s.

Based on our forecasts, 2026 and 2027 will represent the peak of the supply glut, with imports playing catch-up from there. To be clear, we’re very bullish on demand growth, it’s just a highly cyclical industry, and recurrent periods of surplus followed by scarcity are part and parcel of that.

If so, will that also permeate down to a glut on the LNG bunkering side and pressure prices down?

Yes, changes in LNG prices feed very directly into the bunkering market and prices will need to adjust downwards, to incentivise discretionary purchases and encourage fuel switching towards LNG. Sellers have generally had the upper hand over the past few years, but it’ll be the buyers’ turn soon.

Spiraling costs in the wake of Russia’s invasion of Ukraine in 2022 definitely took their toll on the LNG bunkering sector, pressuring demand to the downside and triggering the cancellation or delay of several LNG-fuelled vessels and bunkering projects. But the combination of lower LNG prices and tightening environmental regulations in the maritime sector paint a pretty bright picture for demand going forward.

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Source: ENGINE