Register for a free trial
LNG World Shipping

LNG World Shipping

Rising LNG production requires more fleet investment

Wed 24 Apr 2019 by Ed Martin

Rising LNG production requires more fleet investment
Mel Ydreos (IGU): "The key takeaway is that the industry continues to grow at a fairly healthy pace and the demand is there"

One of the issues raised in IGU’s annual report, released on 2 April this year, is the potential shortfall in shipping capacity. IGU president Joe M Kang noted, “As 51.8 mta of new liquefaction capacity is expected to start up in 2019, the shipping market may become tighter with only 43 newbuild deliveries targeted in the year.”

Commenting on the report at LNG 2019 in Shanghai, IGU executive director of public affairs Mel Ydreos told LNG World Shipping “The key takeaway is that the industry continues to grow at a fairly healthy pace and the demand is there.”

Mr Ydreos added, “We need to ensure that sufficient infrastructure is in place to deliver the volumes to the markets.

There needs to be more investment in vessels in the near future to ensure that the growth has sufficient delivery capacity to deliver to the markets and increase its ability to redirect cargoes.”

For example, Mr Ydreos said LNG cargoes were redirected from Asia to Europe in January and February because, for the first time, the spot price was lower in Asia than Europe.

“There’s a variety of reasons why that happened, but it’s the nature of how the industry is becoming more global and [shows] that the more flexible capacity you have, [cargoes] will reach where they make most economic sense.”

He noted that countries such as China are increasingly looking to LNG as a way of enacting “clean air” policies, and that “tremendous additional loads” are expected to be brought in over the next five years, with the US a key player. “In the next five years we expect 75% of the LNG growth to be US-based.

“That’s a real game-changer from the perspective that all those [cargoes] are destination clause free, they provide more flexibility.”

Returning to the issue of capacity, Mr Ydreos said, “Our concern is what happens not necessarily this year, but next year and the year after – are there enough orders in the queue to ensure that sufficient vessels will match the increase in demand? That is the issue – it is more of a mid-term issue as opposed to short-term issue.”

Incremental growth in LNG bunkering

With the IMO 2020 sulphur cap fast approaching, there has been a steady increase in interest in LNG as marine fuel. “LNG bunkering is an interesting market,” Mr Ydreos said. “We see steady growth, but it will be incremental.”

He noted that while most shipowners have opted to burn compliant fuel, others have opted to install exhaust gas scrubbers and operate on heavy fuel oil on existing vessels as a means of IMO 2020 compliance. He attributes this to a lower capital cost and a faster payback time.

“When you look at new vessels, that’s where the clear advantage goes to LNG,” he added. He also sees certain niche markets, such as cruise shipping, favouring LNG.

Due to the set routes cruise ships operate on, infrastructure can be developed in the knowledge that there will be demand to justify the investment required.

Overall, Mr Ydreos sees interest in LNG as marine fuel increasing once more bunkering infrastructure has been developed. “The advantage is clear, from an emissions, efficiency and cost perspective.”

“On a marginal cost basis, the fuel is cheaper and will be significantly cheaper than low sulphur diesel, for example.”

Prospects for floating LNG

Looking at floating LNG (FLNG) projects, Mr Ydreos said, “Innovations around FLNG really help the industry create and reach markets that were unimaginable in the past, primarily because of the ability to deliver smaller volumes to some of these countries.”

“It has also enabled LNG to become a peak shaving fuel,” he said, citing the example of Brazil where LNG is utilised to supplement hydropower in case of droughts and adverse conditions affecting generating capacity. Benefits for users include the lower capital cost and flexibility of shorter contract terms, Mr Ydreos added.

Mr Ydreos sees a real future for FLNG projects in remote and island markets that need clean, cost-effective fuel to meet their power generation needs.“It is the smaller markets that could use LNG to clean up their power systems, which are reliant on heavier hydrocarbons such as diesel or coal.”

Recent whitepapers

Related articles





Knowledge bank

View all