GasLog: LNG Demand Grew 9% in 2018

Liquefied natural gas (LNG) is expected to have increased by 9%, from 288 million tonnes per annum (mtpa) in 2017 to 313 mtpa in 2018, said GasLog (GLOG).

The Monaco-based owner, operator and manager of LNG carriers said in a stock exchange announcement that China’s LNG imports increased by approximately 16 mtpa, or 41%, to 54 mtpa in 2018, driven mainly by continued coal-to-gas switching in the industrial, commercial and residential sectors.

South Korea, Pakistan, Thailand and Mexico also experienced strong growth in LNG imports during 2018. The outlook remains robust, with Wood Mackenzie forecasting compound annual growth in global LNG demand of 6% between 2018 and 2025.

This growth is expected to be broad-based, with Wood Mackenzie forecasting that South East Asia and Europe will account for approximately 70% of the 148 mtpa net increase in demand between 2018 and 2025, it said.

According to Wood Mackenzie, global LNG supply in 2018 totaled 326 million tonnes (“mt”), or a 9% increase on 2017. Several new LNG supply projects and the ramp-up of existing facilities contributed to the increase in LNG production in 2018.

During the year, new production started in the United States (Cove Point, Corpus Christi Train 1 and Sabine Pass Train 5), Australia (Wheatstone Train 2, Ichthys), Russia (Yamal Trains 2 & 3) and Cameroon Floating LNG.

Supply from existing liquefaction facilities in Egypt, Trinidad and Tobago and Oman also increased following successful efforts to raise domestic gas production. Downtime at existing facilities in Malaysia and Russia partially offset these gains.

Based on Wood Mackenzie’s current forecasts, 2019 is anticipated to be the strongest year ever for supply growth in the LNG market, with supply expected to increase by 40 mtpa to 366 mtpa, a 12% increase on 2018. This includes new LNG production from Elba Island, Cameron, Freeport and Corpus Christi Train 2 in the United States, the Prelude floating LNG project offshore Australia, further increases in Russia’s output and the continued ramp-up of projects which were brought onstream in 2018.

During 2018, three new LNG liquefaction projects reached Final Investment Decision (“FID”), underpinning further LNG supply growth during the next decade. LNG Canada (14 mtpa) in western Canada, Corpus Christi Train 3 (4.5 mtpa) in the United States and the Greater Tortue Ahmeyim project offshore Mauritania and Senegal (2.5 mtpa) were all approved during the year.

In February 2019, the Golden Pass (16 mtpa) project in the United States also reached FID. According to Wood Mackenzie, proposed projects (including Golden Pass) in the United States with a combined capacity of approximately 35 mtpa are expected to gain investment approval in 2019.

Outside the United States, Qatar is aiming to take FID on an expansion of existing facilities from 77 to 110 mtpa. New projects offshore Mozambique (28 mtpa) and the Arctic LNG-2 project (20 mtpa) in Russia are also expected by Wood Mackenzie to be approved in 2019.

In parallel with the progress on new supply FIDs, in 2018 there was a significant increase in the number of announced long-term LNG off-take contracts. According to Wood Mackenzie and company disclosures, 95 mtpa of long-term (defined as greater than 5 years’ duration) off-take commitments have been agreed since the beginning of 2018, compared to 25 mtpa in 2017.

The nature of the LNG marketplace also continued to evolve. According to the Financial Times, the top three independent commodity traders increased their delivered LNG volumes by almost 40% to 31 mt in 2018, taking market share from traditional participants such as national oil companies and major integrated oil and gas companies.

In the LNG shipping spot market, tri-fuel diesel electric (TFDE) headline rates, as reported by Clarksons, averaged $89,000 per day in 2018, a 93% increase on 2017 levels. Headline TFDE rates rose significantly in the fourth quarter of 2018 and reached all-time highs of $190,000 per day in November 2018 following a marked decrease in spot ship availability.

Average headline TFDE rates in the fourth quarter of 2018 were $150,000 per day. Headline rates for steam propulsion (Steam) vessels also reached multi-year highs of $98,000 per day in late 2018. In recent weeks however, relatively mild winter weather and ample inventory levels in key Asian markets have resulted in falling Asian LNG prices, reducing the incentive to move LNG cargoes from the Atlantic to the Pacific Basin and resulting in a seasonal rise in prompt vessel availability and falling spot rates.

"Headline TFDE spot rates are currently assessed at $60,000 per day. Notwithstanding this recent fall and the likelihood of continued seasonality in the spring shoulder months, we continue to believe that the medium-term outlook for spot rates through 2019 and 2020 is positive given supportive LNG commodity fundamentals and LNG shipping supply and demand. However, spot rates may be prone to further periods of seasonality and volatility similar to that seen in 2018," it said.

During 2018 there was a significant increase in term chartering activity. Based on Poten data, charters between 181 days to seven years duration increased to 19% of total fixtures in 2018, from 5% in 2017. Our expectation of structural tightness in the LNG carrier market, combined with increasing spot vessel availability, could result in this trend continuing in 2019 and beyond.

According to Poten, there were 61 orders for dedicated LNG carrier newbuilds in 2018, an all-time high. The orderbook now totals 105 dedicated LNG carriers (>100,000 cbm), of which 63% are backed by long-term contracts. The positive outlook for LNG commodity and LNG shipping markets, as well as historically low newbuild prices, resulted in both existing LNG carrier owners and new entrants ordering new vessels.

"Based on 2018 newbuilding orders and current forecasts of LNG supply growth, we now believe that the LNG shipping market is heading towards a balanced state early next decade. As such, the requirement for additional shipping capacity in this period has now been largely addressed. This implies that newbuilding order activity in 2019 needs to slow relative to 2018 levels in order to reduce the risk of vessel oversupply," GasLog said.