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LNG Shipping Outlook


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www.drewry.co.uk
LNG value chain

Production Liquefaction Transportation Regasification Consumption

Exploration and The facility that LNG Shipping Regasification is a Major end-users
production of natural converts natural gas process of are:
gas from into transportable LNG shipping converting liquefied
underground super-cooled liquid market is highly natural gas (LNG) at Gas power
reservoirs. is the liquefaction concentrated 162 C generation;
plant. as more than temperature back to Fertiliser (LNG
half of the fleet is natural gas at acts as feed gas)
being controlled atmospheric Steel plant
by top 15 temperature. CTO and MTO
companies plant
LNG gasification
plants
On-shore
terminal
FSRU

2 Drewry Maritime Research www.drewry.co.uk


Agenda

LNG demand

LNG Fleet

Freight outlook

3 Drewry Maritime Research www.drewry.co.uk


LNG trade to expand at a strong pace
LNG trade expanded at a strong rate of 7% in 2016 as new Australian plants ramp up their capacity. This
momentum will continue with trade growing at a CAGR of 6% over the next five years.

LNG trade outlook (million tonnes) LNG trade to grow at a CAGR of 6% over the next
CAGR: 6%
400 five years. The trade is expected to reach 360
million tonnes by 2021.
350
Fukushima The push to trade will mainly be coming from the
300 disaster supply side as new liquefaction trains come online,
primarily in the US and Australia.
250
Global liquefaction capacity is expected to reach
200 520 million tonnes by 2021 from current 350 million
tonnes.
150
China, India and new LNG importing countries will
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021
help absorb this growing supply.

Liquefaction capacity forecast (million tonnes) LNG import forecast (million tonnes)

100 60

80 50
40
60
30
40 20
10
20
0
0 2016 2017 2018 2019 2020 2021
2016 2017 2018 2019 2020 2021
Australia US India China
Source: Drewry Maritime Advisors

4 Drewry Maritime Research www.drewry.co.uk


Chinas gas production vs. consumption by province
China contains several natural gas-producing regions, including the western and central parts of the country.
China became a net importer of natural gas from 2007 as demand rose rapidly from east coastal regions.

China NG production vs. consumption


Production

250 CAGR 00-16: Net importer since 2007


Consumption
Consumption (bn

Prod: 11.4%;
Production and

200
Heilongjiang
150 Cons: 15.2%
cbm)

100
50
0 Jilin
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Liaoning
Inner Mongolia Beijing
Xinjiang Gansu Tianjin
Hebei
Ningxia Shanxi
Shandong
Qinghai
Henan
Shaanxi Jiangsu
Tibet
Anhui Shanghai
Sichuan Hubei
China has a proven reserve of natural gas of 3.8 tcm Zhejiang
in 2015. The majority of production comes from the Jiangxi The key consumption areas
western and central parts of the country. are alongside China coastal
Hunan regions with high demand for
China was traditionally a net gas exporter until 2007, Guizhou Fujian energy. With growing natural
when it became a net natural gas importer for the first
gas demand has boost the
time. Since then, gas imports have increased Yunan Guangdong
dramatically in tandem with rapidly developing Guangxi infrastructure development of
LNG terminals, providing
pipeline and natural gas processing infrastructure.
more opportunities from
imported LNG.
Source: National Bureau of Statistics, Drewry Maritime Advisors
5 Drewry Maritime Research Hainan www.drewry.co.uk
China Consumption of Natural Gas
Chinas consumption of natural gas increased by eightfold from 24 billion cbm in 2000 to 206 billion cbm in 2016.
Industry accounts for more than half of total domestic consumption.

China Consumption of Natural Gas 2001-2016 Consumption of NG by industries


250 Industry Residential Transport Other
120%
Consumption (bn cbm)

200 100%
150 80%

100 60%
40%
50
20%
0
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2011 2012 2013 2014 2015 2016 (P)

Industry Residential Transportation Power generation

Natural gas is the Natural gas became a China has a gas-powered Natural gas plays a minor
feedstock for metal dominate source of cooking vehicles registered at 4.6 role in Chinas energy mix
industry, methanol and in urban areas since 2005. million by the end of 2014. with 5% of total production.
fertiliser production. Ministry of Transport Chinese government has
To cope with air pollution planned to increase LNG- targeted to boost share of
and excessive metal powered vessel in river natural gas in total
production capacity in shipping from 2% in 2015 electricity generation to at
North China, consumption to 10% in 2020. least 23% by 2020,
of industry is expected to according to its 13th Five-
ease gradually in next few year Plan.
years.
Source: National Bureau of Statistics, Drewry Maritime Advisors

6 Drewry Maritime Research www.drewry.co.uk


Chinas regasification capacity - existing
China has 13 operational regasification terminal. The aggregate regasification capacity of these terminals is 39.0
mtpa.
On Shore
Terminal Owner Capacity (mtpa) FSRU

Shenzhen Dapeng LNG CNOOC 3.7

Fujian LNG CNOOC 2.6 Heilongjiang

Shanghai LNG Shanghai LNG Ltd. 3.0

Dalian LNG CNPC 3.0 Jilin

Rudong LNG Kunlun Energy 3.5


Hebei Liaoning
Xinjiang Inner Mongolia Beijing
Ningbo LNG CNOOC 3.0 Tangshan LNG Dalian LNG
Gansu Tianjin
Tianjin FSRU
Tangshan Project Kunlun Energy 3.5
Qingdao LNG
Ningxia Shanxi
Tianjin FSRU CNOOC 2.2 Shandong
Qinghai
Zhuhai LNG (FSRU) Henan Jiangsu
CNOOC 3.5 Shaanxi Rudon LNG
Tibet
Qingdao LNG Shanghai Shanghai LNG
Sinopec 3.0 Anhui
Ningbo LNG
Hainan LNG Sichuan Hubei
CNOOC 3.0 Zhejiang
Jiangxi
Beihai LNG Sinopec 3.0
Hunan Fujian LNG
Guizhou Fujian
Yuedong LNG CNOOC 2.0
Yunan Yuedong LNG
Guangdong
Total 39.0 Guangxi
Shenzhen Dapeng LNG
Zhuhai LNG (FSRU)
Source: Drewry Maritime Research
Beihai LNG
Hainan LNG
7 Drewry Maritime Research Hainan www.drewry.co.uk
Chinas regasification capacity new capacity
Chinas regasification capacity is expected to increase in the coming years as import capacity expands at several
of the LNG terminals.

On Shore Terminal under construction


Terminal Owner Capacity (mtpa)
FSRU under construction
Terminal under construction
Terminal waiting approval
Shenzhen Diefu LNG CNOOC 4.0
Ningbo LNG Phase 2 CNOOC 3.0
Heilongjiang
Nangang LNG Sinopec 3.0
Dalian LNG Phase 2 Kunlun Energy 3.0
Rudong LNG Phase 2 Kunlun Energy 3.0
Jiangyin Changbai Group 2.0 Jilin
Terminal waiting approval
Wenzhou LNG Sinopec 3.0
Liaoning
Lianyungang LNG Xinjiang Sinopec 3.0 Inner Mongolia Beijing
Dalian LNG Phase 2
Binhai LNG Sinopec 2.6 Tianjin
Gansu Hebei
Zhoushan LNG Xinao Group 3.0 Nangang LNG
Total 31.6 Shanxi Shandong
Ningxia
Qinghai Lianyungang LNG
Binhai LNG
Henan Rudong LNG Phase 2
Shaanxi Jiangsu
Tibet Jiangyin
Shanghai
Currently 6 new LNG projects are being built in China with an aggregate Anhui Zhoushan LNG
capacity of 18 mtpa. Most of the new projects are located in Southeast coast of Ningbo LNG Phase 2
Sichuan Hubei Zhejiang
China.
Jiangxi Wenzhou LNG
Moreover, 4 new LNG projects are waiting approval with an aggregate capacity
of 11.6 mtpa. Hunan Fujian
Guizhou
The current new capacity as a percentage of operational capacity is 81%. So if
Yunan
everything goes as planned the regasification capacity in China will shoot up in Guangdong
Guangxi
the foreseeable future.
Shenzhen Diefu LNG (FSRU)
Beihai LNG
Source: Drewry Maritime Advisors
8 Drewry Maritime Research Hainan www.drewry.co.uk
Indias LNG demand will continue to grow
Weak domestic gas production and expanding import infrastructure will support LNG demand in the country
though pipeline constraint will keep the demand from surging.

Gas production and consumption (bcm) Production in the country has not kept pace with the
70 growing gas demand, resulting in higher LNG
60 imports.
50 Considering the price sensitive nature of LNG
40 buyers in the country, fall in global LNG prices has
30 also come as boon for LNG importers.
20 Expanding import infrastructure and government aim
10 to increase gas share in the energy mix to 20% by
0 2025 from current 6.5 % will keep LNG demand
2009 2010 2011 2012 2013 2014 2015 2016 healthy in the country though pipeline constraint will
(P) keep demand from surging.
Production Consumption

LNG imports (million tonnes) Regasification capacity in India (million tonnes)

20 60

18 50

16 40

14 30

12 20

10 10

8 0
2009 2010 2011 2012 2013 2014 2015 2016 Current 2017 2018 2019 2020 2021

Source: Drewry Maritime Advisors

9 Drewry Maritime Research www.drewry.co.uk


LNG fleet expanding at a brisk rate
LNG fleet has grown at a CAGR of 5% over the last five years owing to strong ordering seen during 2011-14.

LNG fleet development LNG fleet has grown at a CAGR of 5% over the last
five years on account strong ordering seen during
500 70000 2011-14.
450 65000
Fukushima disaster, shale gas boom in the US and
400 60000 growing liquefaction infrastructure supported new
ordering
350 55000

300 50000 Falling asset prices were also working in favour of


shipowners.
250 45000
2009 2010 2011 2012 2013 2014 2015 2016

No. of vessels 000 cbm

New vessel orders Asset price (160-170,000 cbm)

70 50% 240
60 Period of high
40%
50 ordering 220
30%
40 $ million 200
30 20%
20 180
10%
10
0 0% 160
Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17
Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16
2009 2010 2011 2012 2013 2014 2015 2016
Number of orders
Source: Drewry Maritime Advisors

10 Drewry Maritime Research www.drewry.co.uk


Strong fleet growth puts rate under pressure
The result of strong fleet and stagnant trade between 2012 to 2015 was that freight rates came under severe
pressure.

Short-term freight rate The result of fleet supply-demand mismatch is that


rates have been falling since mid 2012.
140000 10%
120000 The recent improvement in LNG trade has not been
8%
100000 enough to improve vessel rates.
$ per day

80000 6%
60000 4% The cash-break even cost for an LNG vessel is around
40000 $35,000-$40,000 per day.
2%
20000
0 0%
2010 2011 2012 2013 2014 2015 2016

Short-term freight rate Fleet growth (Y-O-Y) RHS

Spot rates Secondhand Asset price


70,000 200
60,000 180
160

$ million
50,000
$ per day

140
40,000
120
30,000 100

Mar-15
May-15
Jul-15

Mar-16
May-16
Jul-16

Mar-17
Jan-15

Sep-15
Nov-15
Jan-16

Sep-16
Nov-16
Jan-17
20,000
Jan 15

Jan 16

Jan 17
Jul 15

Jul 16
Apr 15

Oct 15

Apr 16

Oct 16

10yr old vessel (145,000 cbm ST)


East of Suez West of Suez 5yr old vessel (150,000 cbm DFDE)
Source: Drewry Maritime Advisors

11 Drewry Maritime Research www.drewry.co.uk


Demolitions not supporting market recovery
Young age profile of LNG fleet and growing preference for FSRUs is keeping demolitions low.

Vessel Demolitions Low demolitions in the LNG market is keeping the


vessel supply glut.
6
The LNG fleet is quite young with an average of 10
5
years.
No. of vessels

4
Growing preference for FSRU conversion is also
3
keeping demolitions low.
2

0
2009 2010 2011 2012 2013 2014 2015 2016

Fleet age profile (Average age in years) FSRU fleet development


25
Total fleet 10.2
220,000+ cbm 7.1 20

No. of vessels
200-220,000 cbm 7.8
15
150-200,000 cbm 3.4
125-150,000 cbm 15.6 10
75-125,000 cbm 28.4
50-75,000 cbm 15.7 5

18-50,000 cbm 17.5


0
0 5 10 15 20 25 30 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Drewry Maritime Advisors Newbuild Converted

12 Drewry Maritime Research www.drewry.co.uk


Comparison of converted FSRU and newbuilding
Drewry estimated that conversion cost of LNG to FSRU is between $80 to $90 million, depending on vessel age
and specifications.

Based on our primary survey Lead time for FSRU conversion past examples
Shipyard cost: About $30-$40 million depending the 1.6 1.4
vessel specifications.

Lead time of conversion


1.4
1.2
Equipment cost: About $40-$50 million but if the 1.0 0.8
vessels is old then the cost may go up by $10-$30 million

(years)
0.8 0.7
0.6
The lead time for converting an LNG vessel varies depending 0.4
upon the vessel specification and shipyard experience. (See the 0.2
table on right for reference). An new build FSRU takes almost 0.0
2.5-3.5 years to be built and is currently costing around $250- Golar Spirit Golar Winter Nusantara
300 million. Regas/Khannur

LNG conversion age Difference between Converted and New build FSRU
40 Conversion age of each vessel
Average conversion age Newbuilt LNG Converted
LNG Conversion age

30

20
Cost HIGH LOW
(Year)

10

0 Lead
LONG SHORT
Time
Freeze

Golar

Winter
Toscana

Nusantara

Tenaga

Tenaga
Spirit

Golar

Empat
Golar
FSRU

Satu
Regas
Satu

Vessel name Storage LARGE SMALL


Capacity

13 Drewry Maritime Research www.drewry.co.uk


Outlook: Pain will continue for next two years
The LNG fleet growth will surpass the trade growth for next two years keeping the rates under pressure.

LNG fleet projection Shipping supply-demand balance

600 95000
100000

550
85000

000 cbm
80000
500
75000 60000
450

400 65000 40000


2016 2017 2018 2019 2020 2021 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
No. of vessels 000 cbm (RHS) Supply Demand

Freight rate forecast LNG fleet will grow at an average of 11% for the next
two years, surpassing the trade growth.
70000

60000 Therefore the pressure on rates will remain for the next
two years.
$ per day

50000

40000 Rates will improve from 2019 onwards as fleet growth


slows down while LNG trade growth remains healthy.
30000

20000
2016 2017 2018 2019 2020 2021
DFDE vessels
Source: Drewry Maritime Advisors

14 Drewry Maritime Research www.drewry.co.uk


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www.drewry.co.uk

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