LNG Market Needs More Vessels than Currently on Order - Drewry

Despite the current weakness in LNG shipping rates, Drewry maintains its bullish long-term outlook for LNG shipping and believes that the market will require more vessels than listed on the current orderbook, according to the latest edition of the LNG Forecaster report published by global shipping consultancy Drewry.

Spot rates for dual fuel diesel electric LNG vessels have been hovering around $30,000 per day since the second quarter of last year, representing a decline of 80% compared to the last market peak in 2012. Strong fleet growth coupled with weak cargo demand has been the principle cause. The impact of weak rates is clearly visible on falling newbuilding activity as only four LNG vessels had been ordered in the first six months of the year. By comparison, an average of 44 vessels per annum were ordered over the prior five-year period.  Continuingly weak ordering is expected to slow fleet growth from 2019, exactly at the time by when almost all of the currently under-construction LNG plants will come online.

Drewry reiterates that the long-term outlook for LNG shipping is still strong and the limited new ordering is not based on market fundamentals. “The reason for our optimism is that almost 125 million tonnes of capacity is currently being built and there are plans for more. As a majority of the supply from plants under-construction has been contracted on long term agreements, it is likely that LNG will be traded so requiring more vessels”, said Shresth Sharma, Drewry’s lead LNG shipping analyst. 

“Despite a widened Panama Canal, new LNG export capacity due to come online by 2020 will require shipowners to order an additional 65 vessels over this period to meet shipping demand,” added Sharma.