LNG shipping faces questions as new US volumes emerge

A first cargo is expected to leave Sempra Energy’s Cameron LNG liquefaction facility in the US before the end of this month.

The 177,000-cbm newbuilding Marvel Crane will lift the shipment from the Louisiana plant, which President Donald Trump visited with much fanfare last week.

Sempra Energy prepares to fire up Cameron LNG plant

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This maiden cargo is a sign that some of the ­delayed new LNG projects are finally starting up.

The bulk of this supply is coming onstream from US projects where the volumes have been sold with destination flexibility in their contracts.

Others in the US, such as Freeport LNG and Elba Island LNG, and Shell’s huge Prelude FLNG project in Australia, are due to follow this year. It is the start of the much talked-up more liquid trading environment for LNG, in which flexible shipping will be a core ­requirement.

Mild winters, high storage

But so far this year, LNG cargoes have been piling into Europe as demand from China — which had been threatening to topple Japan as the world’s number one buyer — and other large Asian buyers has fallen on the back of mild winters and high storage.

“LNG supply is set to grow even faster in 2019 than it did last year, but demand growth in the key north-eastern Asian markets will be slower,” said Andrew Buckland, principal analyst for LNG shipping and trade at consultant Wood Mackenzie.

“Imports will be lower in Japan and South Korea this year than they were last, and Chinese growth won’t match the record levels seen recently.

“For shipping, this will mean more of the new LNG supply will have to be absorbed in European markets, which in general means shorter voyages and tonne-mile demand growing slower than LNG trade grows.”

China to increase tariffs on US LNG to 25%

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The trade war between Beijing and Washington is heaping further uncertainty on how much US LNG will head to the East in the longer term. China said last week that it will raise the duty on imports of US LNG from 10% to 25%. However, the world’s second-largest buyer had already axed its purchases of North American LNG and has plenty of alternative suppliers.

Independent consultant Andy Flower calculates that while global LNG supply rose by around 8.6 million tonnes — or 11% — in the first quarter of this year, compared with the same period of 2018, Asian ­imports fell by about 1.5 million tonnes.

In contrast, UK year-on-year imports for the first quarter were seven times higher, and those for the Netherlands were 17 times larger, albeit from low bases.

China leads growth in global demand for LNG

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Analysts and shipbrokers say the concern is that LNG newbuildings such as the Marvel Crane, which were ordered to lift traders’ volumes to Asia, might end up shipping more cargoes to nearer markets, raising available shipping capacity. However, they expect the volume of new LNG to help balance this out.

As the industry grapples with how the incoming wave of supply will be absorbed, 2019 is shaping up to be a big year for LNG project sanctions. Developers have said they will give the green light to more than 210 million tonnes per annum of new LNG.

Flower says that, more realistically, final investment decisions (FIDs) could be taken this year on more than 70 mtpa to 100 mtpa of liquefaction capacity targeting start-up in 2023 and 2024, based on what developers, financiers and contractors have recently communicated on planned projects.

This would be double the 2011 record, when 36 mtpa of production was given the go-ahead as Qatar ­approved its mega-trains. But Flower says previous years have shown that only 30% of what is planned moves ahead.

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Consultant Rystad Energy cautions that the higher Chinese tariffs “will create additional headwinds” for projects awaiting FIDs. Rystad also flags up that in combination with this, the low prices for LNG could affect some of the more expensive projects as they try to secure buyers and financing.

As shipowners look to the newbuilding berths ­being offered by yards and consider the optional slots they are holding, they will need to decide how the new trading environment will affect vessel demand in the decade from 2020.