Challenging Times Ahead for LNG Shipping
Liquefied natural gas carrier freight rates have come under severe pressure due to rising fleet supply and stabilizing LNG demand, according to a new report from Drewry, the London-based shipping consultancy.
“Despite the general market belief that new LNG supply from Australian projects will provide ample employment to the growing fleet,” said the report, “there are immediate challenges on freight rates.” “With Asian demand stabilizing, contractual supply from Australian projects will substantially reduce the dependency of Asian buyers on the spot market,” said Shresth Sharma, Drewry’s lead LNG shipping analyst. “Furthermore, the impact on LNG shipping demand will be muted given Australia’s relative proximity to Asia compared to other key sources of LNG supply such as the Middle East. This will serve to further diminish the overall employment prospects for the LNG fleet in the short term.”
Forty-nine million tons of Australian LNG are expected to hit the market yearly over the next two years.
On the other side of the ledger, Japan is preparing to restart its nuclear power plants, reducing global demand for LNG, and 17 percent of global liquefaction capacity remained unutilized during the second quarter 2015, according to Drewry.
At the same time, the LNG fleet continues to rise, with 30 more vessels expected to be delivered this year and another 41 next year. “The majority are yet to secure dedicated employment,” said the Drewry report. “At present, around 30 to 40 vessels are sitting idle.”
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