Tuesday, 5 April 2011

LNG shipping sees long term demand after Japanese earthquake

Market reports indicate that spot rates asked for LNG ships have risen about twenty percent in the aftermath of the earthquake in Japan earlier this month. Sources say that owners are demanding about $80,000 a day for the Atlantic and Pacific routes as nuclear energy in Japan continues to be severely disrupted and power shortages continue. Another factor driving this development is that many countries in Europe and Asia have increased curbs on pollution this year. Natural gas, emitting about half the carbon dioxide of coal, is consequently in greater demand. LNG owners are now sailing their vessels at maximum speeds to take advantage of the conditions, market reports say, and share prices of LNG companies have risen sharply across Europe.

Although no ship has been hired at the higher rates, it is believed that the tight LNG market, with more than three quarters of the tonnage on long term charters, is at least partly responsible for the present shortage; with much of the gas fleet being controlled one way or another by a few companies, not many are available on the spot market. Experts say that summer is usually the lean season as power demand in colder countries slows down, but the supply of LNG vessels is now very tight.

Oyvind Hagen, an analyst at ABG Sundal Collier in Oslo, told Bloomberg that the cost of shipping LNG may advance to a five year high as fossil fuel comes back in use in Japan; LNG tanker rates will average $100,000 a day in the fourth quarter, he estimates. Operator Golar LNG- with about a dozen LNG ships- has raised its own earnings estimates for the year by 24 percent in the last month.

“There’s no vessel available in the spot market,” said Martin Korsvold, an analyst at Pareto Securities AS in Oslo who agrees with the $100,000 a day forecast. “In a shipping market where you have capacity utilisation of 100 percent, it’s almost ‘pick a number’” for rates.”

Japan, the world’s biggest buyer of LNG, is facing severe power shortages, with Credit Suisse estimating that LNG will probably be used to compensate for about half of the lost nuclear energy capacity; this stood at 34% of the country’s total energy need before the tsunami. The additional gas to Japan will probably be supplied by Russia, Qatar, Indonesia, South Korea, Brunei and Nigeria, besides others. LNG now costs almost half as much as crude, another factor in its favour.

Other countries may shut down at least some nuclear plants or cancel new orders, analysts say. Germany has suspended half a dozen old reactors already, and China has expressed a desire to rethink its nuclear energy policy. Europe is planning stress tests on about 140 reactors. Barclays Capital estimates that global LNG demand will be up at least 5 percent this year as a result.

There are about 350 LNG vessels in the world, according to data compiled by ABG Sundal, with just 27 new builds ones on order, thanks no doubt to the steep costs involved- a new LNG carrier can cost around $200 million. Analysts expect that the new build situation may change quickly, with enquiries already being made from shipyards. Arctic Securities analyst Erik Stavseth says that most shipyards will be unable to deliver until early 2015 n any case, “Shipping will be the LNG industry’s Achilles heel for the next two to three years,” he forecasts.


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