As the end of the year approaches, we can reflect on a buoyant year for the LNG market characterised by heady earnings and the resumption of new orders; acceptance of LNG as a fuel’s environmental credentials being matched with positive action; rapid growth in small-scale LNG; FLNG ‘coming of age’; and LNG bunkering ships becoming available in key locations.
This has been a year when charter rates for LNG tankers reached highs of US$195,000 a day. There has been a subsequent cooling, although rates of US$160,000 were reported as recently as the end of November.
It is possible the rate could fall further, industry sources said, with up to 10 LNG carriers coming on the spot charter market during December as floating cargoes are unloaded.
Ordering of newbuildings has resumed, although at a relatively restrained rate so far. This year, broker Banchero Costa recorded 50 deliveries of 80 m3 vessels, double what was delivered in 2017. Demolition rates were subdued.
Singapore’s commitment to LNG as fuel and the investments it's made to become the premier LNG hub are well known. These ambitions, one might argue, have been given a further boost by Singapore’s surprise decision to ban vessels discharging scrubber-produced pollutants known as ‘washwater’ into its seas. This is likely to accelerate the use of LNG as marine fuel – especially in the Asia Pacific region – because of the port’s importance as a bunkering facility.
Singapore’s Maritime and Port Authority is bending over backwards to encourage LNG use. As the authority told an international bunkering conference in Singapore in October, Singapore is adopting several pro-LNG measures including expanding the LNG bunkering focus group from the original three members in 2014 to 11, the latest member to join being the Suez Canal Economic Zone Authority. The authority also recently joined the Sea\LNG coalition that aims to increase the global supply chain for the fuel.
“By joining Sea\LNG, the authority hopes to foster greater confidence in the availability and reliability of LNG as a marine fuel now and in the future,” the authority told the conference.
Current global production capacity for small-scale LNG (ssLNG) is about 25M metric tonnes per annum (mta) and this is expected to reach 30M mta by 2020 and 80M mta by 2030. Such demand prospects are driving investment in ssLNG.
Truck fuel makes up about two-thirds of ssLNG demand, with power generation taking up about a quarter and the remainder being in marine bunkering, chiefly in Europe and North America. Looking ahead to 2030, marine bunkering demand is set to grow to just over a quarter of ssLNG output.
Notes of caution however have been sounded, especially around the sector's fragmented supply chain.
This was the year the LNG industry’s second and third floating LNG production vessels, Hilli Episeyo and Prelude reinforced the emergence of a major new LNG supply option.
The transfer of a cooldown cargo to the floating LNG production (FLNG) vessel Prelude and the dispatch of a second cargo from the FLNG Hilli Episeyo signals that the era of offshore LNG liquefaction has now taken hold.
The pair join the 180,000 m3 Petronas-operated PFLNG Satu, which loaded its first LNG cargo from the Kanowit field off the coast of Malaysia in March 2017, as the pioneering trio of FLNG vessels. Four more floating production projects are either under development or at a relatively advanced preparation stage while, beyond that, several further FLNG schemes have been tabled.
Floating LNG production obviates the need for undersea gas pipelines to a shore liquefaction plant when the commercialisation of remote gas fields is being considered. Because FLNG vessels are constructed at specialised facilities, the local labour cost and permitting issues associated with the construction of shore terminals can be avoided.
Despite using innovative technologies and the detailed preparation work associated with these inaugural floater projects, the FLNG approach usually translates into shorter lead times and less capital expenditure than required for traditional shore-based liquefaction plants. The time and cost disparities are only likely to grow as the LNG industry builds on its ground-breaking FLNG design work with these initial projects and further refines its floater technologies.
With FLNG now on the map the question that now confronts the sector is which of the various LNG import infrastructure options to go for.
Our fifth game-changer this year was the availability of LNG bunker vessels in key locations. For years the industry wrestled with the classic ‘chicken and egg question’: do you build vessels first or infrastructure? Mike Corkhill neatly dissected this issue earlier this year in an opinion piece titled How to assess a region’s LNG bunkering requirements. In it he highlighted how The Poseidon Med II project provided a ‘sterling example’ of how best to go about introducing LNG bunkering to a region virtually devoid of LNG infrastructure and drew attention to the catalytic effect of DNV GL-led work on developing LNG bunkering guidelines designed to ensure safe fuelling operations. “These guidelines were the precursors of the global regulatory regime governing the use of LNG as marine fuel that has now been established.”
All in all, a stellar year for the industry, which to paraphrase Mr Corkhill at the mid-point of 2018, took even the most optimistic of optimists by surprise.
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