LNG – Will 2013 Ship Orders Lead To Over Or Under Capacity?

Oil painting of Coast Guard security zone by Nina Buxton. Via USCG.mil

(Bloomberg) The liquefied natural gas market may have a surplus of ships in 2014 and 2015 as new vessels join the fleet faster than production plants are completed, according to Hoegh LNG AS, owner of seven carriers.

There are 78 ships on order, amounting to 21 percent of the existing fleet, the Hamilton, Bermuda-based Hoegh said in its quarterly report today. While annual world output of the fuel, known as liquefaction, will be 330 million metric tons in 2017, from 242 million tons in 2011, some of the new ships will arrive before production expands, it said.

LNG projects from Angola to Algeria to Australia were delayed this year, constraining the supply of cargoes. Expanding output in Asia closer to the largest importing countries may reduce shipping demand by trimming transportation distances, according to RS Platou Economic Research. Rates for the vessels on short-term contracts will fall to $110,000 a day in 2013 from a record $150,000 this year, the average of as many as seven analyst estimates compiled by Bloomberg shows.

“The transportation capacity that will be added by the ships on order will be coming before new liquefaction capacity, so there will be a period where there could be oversupply,” Arild Jaeger, an Oslo-based spokesman for the company, said by phone today. Hoegh won’t be affected because its ships have contracts for as many as 20 years, he added.

Hoegh reported net income for last quarter at $872,000, compared with a loss of $2.05 million a year earlier. The shares fell 2.6 percent to close at 41.9 kroner ($7.34) in Oslo.

Under Construction

Liquefaction plants with capacity to produce 108 billion cubic meters of LNG are under construction and another 647 billion cubic meters of capacity are planned, according to the International Energy Agency. Angola LNG’s facility in southern Africa is expected to start production in the first three months of 2013, Awilco LNG AS (ALNG) said Nov. 21. That’s a year later than initially planned for the $9 billion joint venture of state- owned Sonangol EP, Chevron Corp. (CVX), Total SA, BP Plc (BP/) and Eni SpA. (ENI)

The number of vessels per million tons of LNG will rise to 1.54 in 2014 and 1.55 in 2015, from 1.46 next year, estimates Morgan Stanley, the U.S. investment bank. That figure will decline to 1.45 in 2016, it estimates. Ship owners will need to build as many as 370 new vessels by the end of the decade to keep up with demand growth, on top of the carriers already ordered, according to Pareto Securities AS.

LNG is natural gas cooled to minus 160 degrees Celsius (minus 256 degrees Fahrenheit) so it takes up 600 times less space for transportation.

By Isaac Arnsdorf – Copyright 2012 Bloomberg.

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