An Overview of the LNG Shipping Industry (cont’d)
Chart 3: LNG
Carrier 1-Year
Time Charter
Rates
Historically, the majority of the LNG fleet has been
employed on long-term, fixed-rate contracts whereby a
ship is dedicated to a specified project for a period of 20
years or more. The reason ships were employed on such
long contracts was that the LNG itself was sold on longterm offtake contracts. These contracts were favoured
because of the significant capital investments involved
in natural gas extraction, liquefaction, transportation,
storage, and regasification that are all necessary to build
the LNG supply chain.
Under these long-term charters, the ship owner is paid a
fixed rate, typically around $70,000-80,000 per day, and is
responsible for the vessel’s operating costs (for example,
crew, maintenance, and repair costs). The LNG company
directs the commercial operations of the vessel and
pays for all of the voyage costs (including fuel costs, port
charges, and canal dues).
In recent years, a more fluid spot and short-term charter
market for LNG shipping has emerged. This involves
both the emergence of a true spot market, whereby LNG
cargoes are sold on a single-voyage basis, and short-term
charters of four years or less. In 2013, approximately 27%
of all LNG trade was done on a spot or short-term basis,
compared with just 12% in 2000.
Under a voyage charter, the ship owner gets paid freight
for a single voyage and is responsible for all voyage and
operating costs. LNG shipping spot rates can vary widely
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due to market conditions, with earnings reaching as
high as $150,000 per day during the strong spot market
witnessed in 2012.
Looking to the future, the expectation is that LNG trade
– and therefore LNG shipping demand – will grow
significantly in the coming years. The main driver for
this growth is new demand for natural gas in Asia and
the growth in natural gas extraction in Australia, the US,
Canada, Russia, and East Africa.
Teekay estimates that over 200 million tonnes per annum
of new LNG liquefaction capacity will come online
between now and the end of the decade. In order to
transport these volumes, an estimated 160-210 new
vessels will be needed, depending on where the vessels
trade. As a result, ship owners have been busy ordering
new LNG carriers in recent months. There are now over
100 vessels on order from shipyards in South Korea, Japan,
and China. Some of these have been ordered to fulfill longterm contracts, but some have been ordered speculatively
in expectation of future demand.
The build-out of LNG infrastructure across the globe
bodes well for the LNG shipping industry. Ship owners
are getting ready for the coming wave of LNG by building
ships to meet the growing demand.
Christian Waldegrave is a shipping market analyst
with over 10 years of experience. Currently, he heads
up all research activities for Teekay Corporation and
its daughter companies.