Stolt-Nielsen is a household name in chemicals distribution, with a large fleet of chemtankers, shore-based terminals and ISO containers. But when you’re an industry leader, it becomes tougher to maintain growth.
In December, the group finalised its US$575 million acquisition of Jo Tankers. But consolidation has its limits in any shipping segment. As the chemical-logistics market matures, Norway-based Stolt-Nielsen is looking for new ways to grow. LNG shipping is top of its wish-list.
Today, Stolt-Nielsen Gas (SNG) confirmed that it has ordered two 7,500m³, dual-fuel LNG carriers from Keppel Singmarine with options to purchase three additional ships of a similar size. The two confirmed vessels will enter service in 2019 and can also deliver LNG bunker supplies.
SNG has also formed a wholly owned subsidiary, Avenir LNG, to develop small-scale LNG supply chains serving stranded demand. It has two ventures waiting to move forward, at Orestano on the Italian island of Sardinia and at the Port of Rosyth in Scotland.
Stolt-Nielsen president LNG Andrew Pickering spoke exclusively to LNG World Shipping before details of the deal were confirmed: “We looked at small-scale LNG and concluded that it’s really very similar to our chemical business,” he said.
“It’s an integrated business with very similar customers to ours – the big oil and trading companies. Our strategy is to provide supply-chain services in small-scale LNG, to find stranded-demand customers… It’s a simple strategy – but one based on our core competencies in our other businesses.”
New model fleet
Stolt-Nielsen declared its LNG ambitions last summer, when chief executive Niels Stolt-Nielsen set out his plan to launch an integrated LNG-distribution business, based on the company’s own designs for a 7,500m³ LNG ship – to be scaled up or down.
At year-end 2016, data from VesselsValue listed just 14 small-scale LNG carriers on order and seven on the water. Small-scale carriers are a specialist arm within LNG shipping. However, analysts expect take-up of LNG as marine fuel and for gas-to-power projects to build new demand for smaller LNG carriers.
Stolt-Nielsen will base its first ship in the Mediterranean and the second in northern Europe. Although the vessels are designed to offer ship-to-ship bunkering, the company will not invest in supplying LNG as marine fuel.
“Other companies are going to design pure LNG-bunkering vessels,” Mr Pickering said. “These ships are designed for efficient transport of LNG…. Although we plan to work in the marine business for a time, I don’t see us getting involved in that in a large way.”
The Sardinia project should go live by year-end 2019. Stolt-Nielsen is working with two local partners in Sardinia, where it has a 10 per cent stake in Higas. It will increase that interest to 80 per cent on agreeing the offtake and permits.
“We’ll then, in effect, own 80 per cent of the terminal and the product, purchasing LNG from a producer using Stolt-Nielsen’s assets,” Mr Pickering said.
“Sardinia has the highest electricity costs in Europe. Mainland Italy has high electricity costs, and Sardinia has the highest costs of all. For us, this is an obvious place to start. We plan to go wherever the need is – wherever the business case is most compelling for the customer to make the conversion.”
Stolt-Nielsen will target industrial users – especially energy-intensive industries such as cement plants, smelters, oil refineries – and power play, for 100MW-200MW plants.
In Scotland, Stolt-Nielsen is negotiating an offtake deal with LNG-trucking firm Flogas and with port operator Forth Ports. It has hired engineering firm WSP to work on the permitting process.
Flogas delivers truckloads of LNG loaded at Grain LNG in the south of England to small-scale customers across the UK, including Scotland. That does not come cheap.
“Scotland’s electricity costs are much higher than in the rest of the UK,” Mr Pickering said. “The more remote you get, the higher the costs go. We are targeting areas where there is an obvious need to convert to LNG from conventional fuels such as heavy fuel oil, diesel and LPG.”
Today’s confirmed order includes three options. Stolt-Nielsen sees future opportunity in island nations such as the Philippines, Indonesia and the Caribbean, and in emerging markets such as India. It has no plans to rush in.
“We have started with areas that may be less risky, because we want to prove our concept and showcase what we can do,” Mr Pickering said. “But the opportunity lies in the archipelagos.
“We have ship designs to suit a shallow draft… We are also talking to several players in the Caribbean where, again, there are counterparty issues. Here, floating terminals are more likely to be the solution – to be able to move assets out if things don’t work as planned.”
SNG sees three ways to grow its LNG carrier fleet. It has also designed midsize LNG carriers, of 20,000m³ and 40,000m³. As of December, there were 10 midsize ships on the water and two on order.
Timing that new fleet investment may prove tricky. Shipowners have traditionally ordered conventional-sized LNG carriers against project-based supply contracts of up to 30 years. Most small and mid-scale LNG projects are based on supply deals of ten years or less. These projects still require a huge capital commitments from the shipowner.
“These smaller ships will be flexible,” Mr Pickering said. “We can move them into different markets… After five years, those vessels will still be useful… Longer term, there’ll be liquidity in the shipping market. Ships will be more interchangeable. People will take larger positions – but not in the next three to four years.”
The question now is how far down stream SNG wants to go.
Its decision to enter the market buying in to the customer base is not a long-term strategy. Instead, SNG wants to provide the midstream assets – to manage the supply chain and provide the logistics.
“We would love to have someone to own the molecules, to own the customer – someone to take the credit risk and the currency risk – and to get paid to provide the delivery, the storage and the ISO containers,” Mr Pickering said
As the market leader in chemical ISO containers, Stolt-Nielsen also has ambitions for LNG ISO containers to build new business.
“We can use ISO containers for delivery and for storage,” Mr Pickering said. “We are being realistic and are prepared to start with low volumes and invest in very small-scale supply chains. We have the world’s largest supply of ISO containers, owned and operated.
“We want to get a cryogenic business operating and to persuade customers that it works – and that it’s safe. It’s the future.”