The 10 LNGC deliveries in January 2018 was a new monthly record, while February has been a busy month for contract signings, with seven newbuilds ordered
It has been a brisk start to 2018 for the builders of LNG carriers, with 13 LNG carriers delivered and 10 ordered during the first two months of the year. The 10 ships commissioned in January 2018 made it the busiest-ever month for LNGC completions.
An underlying cause of the busy round of ship completions is the delayed delivery dates agreed by shipowners and yards for vessels last year. Only 37 LNG vessels were completed in 2017, well down on the 57 originally timetabled.
The pushback in the completion dates for some vessels means that shipbuilders are due to hand over 62 LNG carriers in 2018. If achieved, this number will be a new annual output record.
With six of the 13 early 2018 deliveries to its name, Daewoo Shipbuilding & Marine Engineering (DSME) hosted an LNGC handover ceremony on average once every 10 days during January and February.
Five of the DSME newbuildings are powered by a pair of MAN’s mechanically operated, electronically controlled, gas-injection (ME-GI) engines which require a fuel gas supply system to introduce cargo boil-off gas at high pressure.
The sixth DSME ship is the 172,000 m3 Vladimir Rusanov, one of a series of 15 icebreaking, dual-fuel diesel-electric (DFDE) LNGCs the South Korean yard is building to carry the Yamal LNG export cargoes. Five have now been handed over.
One of the early 2018 DSME completions is the 173,400 m3 BW Tulip, the BW Group’s first ME-GI LNG carrier and one of a series of three. BW now has 16 LNGCs in operation and five on order; three of which are floating storage and regasification units (FSRUs).
Two of the other DSME completions are noteworthy in that they welcome Flex LNG into the select ranks of LNGC owners and operators. The 174,000 m3 Flex Endeavour and Flex Enterprise mark the realisation of an initiative launched in 2007 when the original Flex LNG proprietors ordered a pair of 90,000 m3 M-Flex carriers at Samsung Heavy Industries (SHI).
The idea behind these novel ships was that either regasification or liquefaction facilities could be added to the flat deck to give them a multipurpose role. The flush main deck was made possible by the choice of IHI’s self-supporting, prismatic-shape, IMO Type B (SPB) containment system for the cargo tanks.
In the event, the M-Flex ships were never built but the Flex LNG order at SHI went through various ship designs and number incarnations, in line with waxing and waning charterer interest in the offering.
Flex LNG was acquired by John Fredriksen in 2014 and he subsequently augmented the SHI order, amended to two conventional 174,000 m3 LNGCs, with orders for four similar ships at DSME. Flex Endeavour and Flex Enterprise are the first of the six; all the vessels will be in service by mid-2019, all will be propelled by ME-GI engines and all will have Gaztransport & Technigaz (GTT) No 96 membrane cargo tanks.
Enter KC-1 tanks
Perhaps the most notable of the 13 ships delivered so far in 2018 is SK Shipping’s 174,000 m3 SK Serenity. The vessel is the first of a pair of SHI-built LNG carriers to be fitted with KC-1 tanks, a membrane containment system developed by KC LNG Tech, an affiliate of Korea Gas Corp (Kogas), to provide Korean shipbuilders with a domestic alternative to the two established GTT membrane technologies.
SHI is due to complete the sister ship, SK Spica, in March 2018 and both vessels have been fixed on 20-year charters to Kogas to carry LNG cargoes from Cheniere Energy’s export terminal at Sabine Pass in Louisiana. Each ship is expected to lift about 500,000 tonnes of LNG per annum.
The deliveries of the two KC-1 ships are approximately six months later than originally envisaged. However, considering the challenges involved in introducing a major new technology in the LNG shipping sector, the principals are not overly disappointed with the delay.
New order momentum
The high level of newbuild contracting in the first two months of 2018 owes much to the LNG industry’s growing awareness that talk of an extended oversupply of ships and cargoes is overblown.
Shell, in its second annual LNG outlook published in February 2018, warns the market could face a shortage of LNG by the mid-2020s due to underinvestment in new projects. Pressure is growing for final investment decisions (FIDs) in 2018 for several of the proposed LNG export schemes currently on the table. Agreement between LNG buyers and sellers on the type of purchase contract that brings optimum mutual benefits will facilitate approvals for new projects.
The extent to which the market has absorbed LNG over the past 18 months reinforces the need for new ships and projects. Shell points out that the world trade in LNG grew by 29M tonnes in 2017, 30% more than expected, to reach 293M tonnes.
The fastest growing LNG producer over the next three years will be the US, where exports are set to increase fivefold, from 13M tonnes in 2017 to 65M tonnes in 2020. This volume of cargo will require a fleet of approximately 115 LNGCs due to the long distances involved in reaching the main Asian customer base. Most, but by no means all, of the ships needed for these US exports have already been ordered.
Newbuilding orders over the past two months have been supported by the competitive yard prices still on offer. DSME, for example, secured orders for four ships during the period, each costing around US$183M, or 10% less than prices pertaining in 2015.
The cost of FSRUs has also come down markedly in recent years, with an FSRU ordered in early 2018 at a cost of around US$225M.
One of the early 2018 newbuild orders stands out from the crowd and that is the contract for an 18,600 m3 LNG bunker vessel (LNGBV) at the Hudong-Zhonghua yard in Shanghai. Total and Mitsui OSK Lines (MOL) ordered the ship to fuel the fleet of nine new 22,000 TEU dual-fuel container ships that the French liner operator CMA CGM currently has under construction.
On delivery in 2020, the Total/MOL newbuild will be three times the size of any other LNGBV afloat. The owners’ choice of GTT’s Mark III membrane containment system for the bunker vessel’s cargo tanks is an interesting one.
All the LNGCs built by Hudong to date incorporate tanks built to the No 96 design, GTT’s other membrane technology. China is yet to build an LNG vessel to the GTT Mark III system and Hudong’s LNGBV order will necessitate the establishment of a new production line, including for the waffled stainless steel plate that forms the Mark III system’s primary barrier.
It is no coincidence that the LNG bunker tank on each of the new CMA CGM container ships will also be built to the GTT Mark III design and have a capacity of 18,600 m3. In addition, Hudong will be building five of the big box ships and the neighbouring yard of Shanghai Waigaoqiao the other four.