Long-term promise in the lng sector

Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com

The views of the Publishers do not necessarily correspond to the views of Lambos Maritime Services Ltd. 

The global lng market, like almost everything else, is under serious pressure. New production capacity, due to be commissioned in the coming months, is likely to raise present capacity by as much as a third just when energy markets are awash with supply and prices have plummeted. 

Much of the new capacity is already running late. Held up by construction delays and cost over-runs. These delays may have been welcome for some in an energy industry coming to terms with a the global economic downturn, a sharp drop in demand for its products and, of course, much lower prices. However, for many of those involved in lng transportation, these delays are proving inconvenient and extremely expensive. 

A number of lng owners have committed vast amounts of capital to the construction of the largest and most expensive gas carrying vessels ever. Many of the ships were rushed out in anticipation of booming lng markets, new trades and buoyant demand for long-haul lng transport. In the event, many of these new ships have little or nothing to do but will still be joined by plenty of other new ships in the months ahead. 
   

Lng executives are keen to point out that the current energy downturn is merely temporary and nobody ever invested in lng transport capacity based on short-term movements in the market. The new projects, they insist, notably in Qatar, will come on stream soon, some a little late admittedly. But others will be developed once world energy resumes its typical upward trend. However, in the short run, lng operators who lack long-term employment cover on their ships may find life uncomfortable.
  

There are tough decisions ahead for some owners, says Sveinung St?hle, CEO of Hoegh LNG, one of the sector’s early pioneers and a company that is focusing on floating lng technology and tailor-made gas transport systems for its clients. He believes that then owners of as many as 15-20 ships will have to decide what to do with their ships over the next few months. The options are limited and potentially expensive.
   

They could include mothballing tonnage in the hope of a return to better days soon. But then, charterers will have plenty of ships to choose from and there is no guarantee of sound long-term employment in the future. They could opt to continue trading their ships on a spot basis; but rates are down and show little sign of recovering soon. They could look at conversion opportunities, with a growing number of floating projects under consideration. Or they could take the ultimate hit, and decide to scrap this ships, potentially a very expensive option of future long-term revenue generating opportunities are lost as a result. 
   

The numbers are big. Take Hoegh Norman Lady, for example. The 1973-built steam-turbine powered vessel has been a fantastic commercial success for its owner over the years, having been deployed on a 20-year timecharter with a three-year option; and now a 13-year deal with another seven-year option. Hoegh executives remain tight-lipped on rates but the vessel has been almost permanently employed for 36 years, with a few more to go.
   

Hoegh executives stress that lng transportation is very definitely a long-term business, requiring a lot of patience. It is against this backdrop that the firm has developed a range of highly innovative design concepts in the floating field which are now being translated into new ships. The company has two shuttle and regasification vessels (SRVs) under construction at Samsung, for example, which will be chartered to GdF Suez and deployed on the Neptune deep water port in Massachusetts Bay, US. One of the $330m (delivered price) vessels will deliver later this year, followed by the second in 2010. 
   

Other concepts developed by the company include purpose-built and converted units for a number of floating applications. And Hoegh is convinced that this type of technology will provide the way ahead for so-called “stranded” gas reserves, found in small volumes and often remote locations. A number of such projects are under development, including the Triton development off Ancona in the Adriatic, involving lng fpso’s. Many more will be needed, the company believes, so watch this space!