Drewry: LNG Carrier Freight Market Headed for Challenging Times

Drewry says the LNG shipping market is headed for difficult times as rates are already challenged and demand falls.

Liquid natural gas (LNG) carrier freight rates are "under severe pressure" as a result of growing fleet capacity at a time of stabilising LNG demand, Drewry Shipping Consultants Ltd (Drewry) said this week in an emailed report.

“There are already signs of weakness in LNG demand as 17 percent of global liquefaction capacity remained unutilised during the second quarter 2015,” stated Drewry.

“The LNG fleet continues to rise, with 30 more vessels expected to be delivered this year and a further 41 next year. Nonetheless, the majority are yet to secure dedicated employment; at present, around 30-40 vessels are sitting idle.”

Drewry asserts that, despite confidence in the market that new LNG supply from Australian projects will boost employment of the growing fleet, LNG freight rates are already being challenged because of an estimated 49 million tonnes per annum (mtpa) of Australian LNG cargo supply destined for market within the next two years.

Further, easing Asian demand in the LNG market will, in the short term, also add to a decline in the overall LNG fleet utilisation.

"Approximately 75 percent of new LNG shipping capacity serving this trade has been contracted by Asian buyers, principally the big three importers of Japan, South Korea, and China," states Drewry.

Shresth Sharma, lead LNG shipping analyst at Drewry, asserts that “with Asian demand stabilising, contractual supply from Australian projects will substantially reduce the dependency of Asian buyers on the spot market."

In March, Fereidun Fesharaki, chairman of Facts Global Energy, told an audience at the Fujairah Bunkering and Fuel Oil Forum (FUJCON 2015) that demand for LNG as a marine fuel will grow to capture 12 percent of the global bunker market by 2030