GasLog Partners, which owns, operates, and acquires liquefied natural gas (LNG) carriers under multi-year charters, said that the longer-term outlook for natural gas demand continued to strengthen in the first quarter of 2019.
Despite LNG demand in the first quarter of 2019 being negatively impacted by warmer than usual weather in the Northern Hemisphere winter, global LNG imports during the period totalled 88 million tonnes (mt), compared to 79 mt in the first quarter of 2018, or 11% growth, according to Poten.
In particular, China’s LNG imports totalled 15.3 mt, 24% growth over Q1 2018. Europe’s LNG imports in the first quarter more than doubled to 22 mt, compared to 10 mt in Q1 2018, as lower LNG prices made gas fired power generation more competitive than coal, indigenous gas production declined and LNG gained market share from pipeline imports.
This more than offset import declines from major North East Asian consumers in Japan, South Korea and Taiwan (10%, 22% and 6% declines year-on-year, respectively), demonstrating the increasingly diverse and broad-based nature of LNG demand growth.
Natural gas is increasingly seen as complementary to renewable energy in the transition away from fuels which emit high levels of carbon dioxide and other harmful emissions.
LNG is expected to be the fastest growing hydrocarbon supply source. In its recent LNG Outlook 2019, Shell, one of the largest players in the global LNG market, forecasts that natural gas would satisfy 41% of global energy demand growth over the 2018-2035 period, with renewables satisfying 30%.
Over this period, Shell forecasts that LNG will be the fastest growing gas supply source, with demand potentially reaching approximately 700 mt in 2035, compared to delivered volumes of 319 mt in 2018.
According to Wood Mackenzie, global LNG supply totalled 88 mt in the first quarter of 2019, 10% growth on the first quarter of 2018, principally driven by new supply additions in the U.S., Australia and Russia.
In contrast to these positive longer-term trends, the first quarter saw relatively weak LNG commodity and shipping markets. A combination of high inventory levels in key North East Asian gas markets ahead of the 2018-2019 winter and relatively mild temperatures during the winter period have led to reduced gas consumption and Asian LNG prices reaching their lowest levels since April 2016.
Low LNG prices, particularly in North Asia, have reduced the incentive in recent months to ship LNG cargoes from the Atlantic Basin to the Pacific Basin, reducing tonne miles - a key driver of demand for LNG spot shipping.
As a result of these trends in the first quarter, there was ample prompt vessel availability against a backdrop of weaker than expected demand due to warmer than normal winter temperatures. This in turn impacted headline spot LNG shipping rates, fleet utilization, positioning fees and ballast bonuses leading to a marked decline in spot vessel earnings in the first quarter of 2019 relative to the fourth quarter of 2018.
TFDE headline rates, as reported by Clarksons, averaged $60,000 per day in the first quarter of 2019, compared to $68,000 per day in the first quarter of 2018 and $150,000 per day in the fourth quarter of 2018.
Headline TFDE spot rates are currently assessed at $34,000 per day, with rates having stabilized in recent weeks as charterers look to capitalize on the recent fall in rates to lock in shipping capacity for the remainder of 2019 and into 2020.
"We expect that prompt vessel availability will decline throughout 2019 and 2020 given the significant forecasted LNG supply additions outlined above. As a result, we expect spot shipping rates to rise from current levels, with the magnitude and duration of that recovery dependent on several factors, particularly the pace and location of demand growth and cooling and heating demand during the Northern Hemisphere summer and winter respectively," the company said.
According to Poten, as of April 17, 2019, the LNG fleet and orderbook (excluding floating storage and regasification units (FSRUs) and vessels with capacity below 100,000 cbm) stood at 491 and 110 vessels respectively.
Of the LNG carriers in the orderbook, 67, or 61%, are chartered on long-term contracts. 14 vessels were ordered in the first quarter of 2019, compared to 17 and 20 vessels in the first quarter of 2018 and the fourth quarter of 2018, respectively. These figures provide early indications that newbuild ordering may be slowing somewhat compared to newbuild ordering in 2018.
"This is a positive development which we believe is necessary to avoid an overbuilt market in 2021 and 2022, a period when LNG supply additions are forecast to slow before increasing again in 2023 and 2024," it said.
AOG Digital E-News is the subsea industry's largest circulation and most authoritative ENews Service, delivered to your Email three times per week