LNG carrier owners have enjoyed a hot summer market with rates breaking six figures - but the bullish sentiment has fueled ordering and led to suggestions of oversupply building up.
Ben Nolan of Stifel says the tight market is not a flash in the pan. However, concern is growing about excess capacity early in the next decade as the orderbook swells.
In his latest LNG quarterly report, Nolan said strong shipment volumes to Asia had fueled the strong market to deliver one of the strongest third quarters on record.
“We expect the market to tighten further as the weather cools, and the industry to be buzzing with activity as new long-term off-take and shipping contracts are signed and projects affirm their final investment decisions,” he said.
With the spot market going strong, Nolan says period business is likely to accelerate as owners take the opportunity to lock in stronger returns.
“However, new ship ordering has responded, and we are increasingly concerned that if ordering does not slow the market could be oversupplied by 2021,” he warned.
Nolan says this year is likely to mark a new record for LNG carrier orders with 37 vessels already booked and more expected.
“While we estimate the market is still likely to be short capacity in 2019, starting in 2020 more ships are likely to be delivered than cargoes, so the shortfall of shipping capacity is expected to begin declining and if owners are not very careful 2021 could be ugly again,” he added.
“Specifically, much of the ordering in the second half of the year has come from operators without existing LNG operations which are always a sign of overheated markets.”
