Archives for category: gas carrier

A common ‘rule of thumb’ statistic in shipping market analysis, in order to give an idea of prospective capacity growth, is the orderbook expressed as a percentage of the existing fleet. Today, at a global fleet level, that figure stands at a historically relatively low level in dwt terms (10%), but what does that actually tell us? This week’s Analysis takes a look at the pros and cons of this widely used statistic.

 

For the full version of this article, please go to Shipping Intelligence Network.

In the broader context of firm global LNG demand growth, Australian offshore gas mega-projects have been a significant feature of the offshore sector for the last decade, driving innovation (think Prelude FLNG) and yielding rapid production growth. There are also a few projects projected to push output even higher in the short term, though against this backdrop, there are some uncertainties in the longer term.

For the full version of this article, please go to Offshore Intelligence Network.

At this time of year, icy conditions are not uncommon, but the warmth of the festive season is usually enough to melt even the coldest of hearts. Going into this year, shipping market activity might have still felt pretty iced up for many, but increased activity in a number of core areas in 2017 has seen the shipping market temperature rise a little…

For the full version of this article, please go to Shipping Intelligence Network.

 

Natural gas is set to account for an increasing share of the global energy mix in coming years, with gas consumption growing by an average of around 1.5%-2% a year out to 2040, according to energy forecasting agencies such as the IEA. And based on recent trends, if the consensus views on natural gas prove accurate, the implications for the offshore and LNG carrier fleets are likely to be significant.

Stepping On The Pedal

In 2016, global natural gas demand stood at an estimated 347bn cfd, up by 24% on the 280bn cfd consumed in 2006. Demand for natural gas in recent years has been driven by industrialisation in developing economies (Chinese gas demand, for example, grew at a CAGR of 13% in 2006-16) and environmental concerns the world over. Historically, the majority of trade in natural gas has been by pipeline, for instance from Eurasia to Europe. In 2015, pipelines still accounted for 68% of natural gas volumes moved globally.

However, liquefied natural gas (LNG) has become an increasingly important form in which gas is traded, even given the costs of complex liquefaction and regasification facilities. Over 50% of existing nameplate liquefaction capacity at LNG export terminals (349mtpa globally) has come online since 2005. As a corollary, from start 2006 to start March 2017, the LNG carrier fleet increased from 193 to 479 vessels and tripled in total capacity to 70.2m cubic metres of LNG.

Shifting It Up A Gear

Growth in the seaborne LNG trade is in turn closely linked with growth in offshore gas production, as major LNG exporters such as Qatar and more recently Australia use offshore gas fields to provide feedstock to LNG trains. Qatar accounted for 30% of LNG exports and 22% of existing liquefaction capacity in 2016, all fed via offshore gas, mostly from the giant North Field. In 2006, offshore fields accounted for 28% of global gas production and by 2016, 31%. This is set to rise to 32% (119bn cfd) in 2017, mainly due to field start-ups off Australia that are to feed LNG projects like Wheatstone. Finding, developing and supporting offshore gas fields on Australia’s NW Shelf has created demand for a range of vessels from the offshore fleet of over 13,500 units.

More Gas In The Tank

The exploitation of these remote reserves has also spawned the FLNG concept – vessels that can be used to exploit otherwise stranded gas. The LNG markets are clearly challenged at present but in the long term, planned FLNG projects in Australia, Mozambique, Tanzania, Mauritania and other areas could potentially sustain offshore gas production growth. Another major source of gas production growth has been the US shale gas sector, where production rose from 4bn cfd in 2007 to 48bn cfd in 2016. The US accounts for over 50% of liquefaction capacity under construction (while some planned projects entail liquefaction of shale gas on near-shore FLNGs) and is set to become a major LNG exporter in coming years.

So offshore gas production has grown as a share of total global gas production, as has US shale gas. Both trends can create opportunities for LNG and offshore vessels. And if, in line with consensus expectations, gas continues to grow as a share of the energy mix, then these trends may have a long and interesting road ahead.

SIW1265:Global Natural Gas Production And LNG Export Capacity

The shipping markets have in the main been pretty icy since the onset of the global economic downturn back in 2008, but 2016 has seen a particular blast of cold air rattle through the shipping industry, with few sectors escaping the frosty grasp of the downturn. Asset investment equally appears to have been frozen close to stasis. So, can we measure how cold things have really been?

Lack Of Heat

Generally, our ClarkSea Index provides a helpful way to take the temperature of industry earnings, measuring the performance of the key ‘volume’ market sectors (tankers, bulkers, boxships and gas carriers). Since the start of Q4 2008 it has averaged $11,948/day, compared to $23,666/day between the start of 2000 and the end of Q3 2008. However, earnings aren’t the only thing that can provide ‘heat’ in shipping. Investor appetite for vessel acquisition has often added ‘heat’ to the market in the form of investment in newbuild or secondhand tonnage, even when, as in 2013, earnings remained challenged. To examine this, we once again revisit the quarterly ‘Shipping Heat Index’, which reflects not only vessel earnings but also investment activity, to see how iced up 2016 has really been.

Fresh Heat?

This year, we’ve tweaked the index a little, to include historical newbuild and secondhand asset investment in terms of value, rather than just the pure number of units. This helps us better put the level of ‘Shipping Heat’ in context. In these terms, shipping appears to be as cold (if not more so) as back in early 2009. This year the ‘Heat Index’ has averaged 36, standing at 34 in Q4 2016, which compares to a four-quarter average of 43 between Q4 2008 and Q3 2009.

Feeling The Chill

Partly, of course, this reflects the earnings environment. The ClarkSea Index has averaged $9,329/day in the year to date and is on track for the lowest annual average in 30 years. In August 2016, the index hit $7,073/day, with the major shipping markets all under severe pressure.

All Iced Up

The investment side has seen the temperature drop even further. Newbuilding contracts have numbered just 419 in the first eleven months of 2016, heading for the lowest annual total in over 30 years, and newbuild investment value has totalled just $30.9bn. Weak volume sector markets, as well as a frozen stiff offshore sector, have by far outweighed positivity in some of the niche sectors (50% of the value of newbuild investment this year has been in cruise ships). S&P volumes have been fairly steady, but the reported aggregate value is down at $11.2bn. All this has led to the ‘Shipping Heat Index’ dropping down below its 2009 low-point.

Baby It’s Cold Outside

So, in today’s challenging markets the heat is once again absent from shipping. And, in fact, on taking the temperature, things are just as icy as they were back in 2008-09 when the cold winds of recession blew in. This year has shown that after years out in the cold, it’s pretty hard for things not to get frozen up. Let’s hope for some warmer conditions in 2017.

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Plagued by constant blackouts and power shortages, Egypt appears to be facing its worst energy crisis in decades. However, following the historic discovery of the giant gas field Zohr offshore Egypt in August this year and revived interest from IOCs, it seems that the tables are set to turn. Indeed, after a period of gas production decline, Egypt’s energy outlook is getting increasingly bright.

Slide Down The Gas Pyramid

Until recently, Egypt’s gas production story had been one of growth: production climbed from 1.68 to 5.76 bn cfd between 2000-2009 and in 2003, it was sufficient to kick-start LNG exports. However, a combination of political unrest (notably the Arab Spring of 2011) and rising population has resulted in natural gas supply shortages over the last 5 years. Domestic gas demand has on average grown by 8% y-o-y, eventually outstripping supply. As a result, Egypt has been forced to re-route LNG destined for exports to domestic consumption. Indeed, at the start of 2014, BG announced it was breaking its contracts because it was unable to export enough gas. This year, Egypt resorted to importing LNG from Qatar – a bitter moment for the previous exporter.

Enter Zohr

They say that when you hit bottom, the only way is up and for Egypt, this seems to be the case. Earlier this year, ENI made what is believed to be the largest ever gas discovery in the Mediterranean, named Zohr. The field is part of the Levantine Basin, home to other prolific gas finds such as the Israeli Leviathan field. ENI puts the find down to different use of sequencing models, concentrating on carbonate rather than classical sand reservoirs. The gas giant (estimated to hold 30 tcf of lean gas) is located in water depths of 1,450m, providing an exciting departure from typical shallow exploration of mature basins in the region. Additionally, BP announced a $12 billion investment in Egypt’s West Nile Delta project: another deepwater discovery with 5 tcf of gas resources. A move to deeper waters creates opportunity for subsea development, the current production solution of choice in all of the country’s active deepwater fields. Out of the 68 active subsea units in Egypt, 40 are operated by ENI and 8 by BP. It is likely that these operators will continue to implement subsea development in their future projects.

Clash Of The Giants

Elsewhere, the discovery of Zohr was not such welcome news. There were plans to import gas via a pipeline from the Tamar field and (once in production) the competing gas giant, Leviathan, in Israel. Plans for the Leviathan field will now have to be redrawn and potentially accelerated if Israel wants a claim of the region’s LNG exports. However, following extensive regulatory and anti-trust objections, its start-up date remains uncertain.

Nevertheless, it is clear that Egypt’s fortunes are turning. The Zohr discovery, alongside other scheduled start-ups, will strengthen Egypt’s energy balance in the long-term. And the story does not end here: it has been reported that there are 7 other deepwater blocks with similar lithology to ENI’s. There is evidently a revived interest in the Levantine basin, as IOCs begin to wonder where the next giant could be hiding.

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Successful investors are always looking to get on the right side of an uneven bet, and the shipping market has had an uneven look to it so far in 2015. There has been some improvement in earnings, and the Clarksea Index has risen to around 30% above its 2014 average. However, the upside has not been spread equally across the sectors at all, and the same could be said of trends in capacity growth.

Uneven Territory

Looking at the key markets, the LPG sector has continued to be a star performer, and tankers have had a great run in the year to date too. Containerships have seen charter earnings increase from historical lows, but poor old bulkers continue to see rock bottom levels. It’s an uneven picture to say the least. However, one factor that appears to be more even is the volume of capacity entering the fleet.

Flattening Out

Shipyard output looks fairly steady, with the 6-month moving average of deliveries averaging around 7-8m dwt per month for about a year and half now. As a result fleet growth has slowed from the c.9% level seen in 2010-11, and today the projection is for a fairly steady rate of growth in total cargo fleet capacity, with expected expansion of 3.5% this year and 4.1% in 2016. Is this good news? A high level view may suggest that, with a fair wind on the demand side, more moderate supply side growth at least should not make the underlying market surplus any worse. However, looking in more detail it is clear that the rate of capacity growth is highly uneven across sectors too.

Speeding Up

Supply growth in the key cargo vessel sectors can be split into three. In the fast lane we have those sectors where fleet growth is expected to speed up in 2016. LPG carrier capacity growth already looks rapid (VLGC capacity is projected to grow by 18% this year) and will accelerate again next year. Crude tanker fleet growth will also speed up (VLCC capacity is projected to expand by 6% in 2015). What sort of ‘landing’ might that bring for these markets? Capesize bulker fleet growth will ramp up to 5% in 2016 (as if this sector needed any more pressure), and after a few years of shrinkage the 1-3,000 TEU boxship sector will at last see some (much needed) expansion (1%).

Slowing Down

Supply growth in other sectors looks set to remain relatively steady in 2016 compared to 2015, but there are also a number of sectors where it is projected to slow in 2016. LNG carrier and Handy bulker supply growth will start to recede. Notably, expansion in the large (8,000+ TEU) boxship sector will begin to slow (20% in 2015 to 13% in 2016) whilst the medium-sized boxship fleet will staunchly continue to decline (by 2% in 2016).

So, market earnings are uneven today and despite the big picture suggesting that capacity growth will remain moderately steady across 2015 and 2016, delving into the detail suggests that supply-side impetus will be uneven from one sector to another. Some sectors might be start to feel fresh pressures whilst others might breathe a sigh of relief. Those aiming to get on the right side of the bet should look closely. Have a nice day.

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