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LNG Shipping Insight: Another bleak year?

Time：2015-01-20 Browse：124 Author：RISINGSUN
The year 2014 was not so good for LNG shipowners as freight rates remained under pressure throughout the year as the supply-demand gap widened. The spot rate for a conventional LNG carrier averaged $50,000pd in 2014, against an average of $98,000 during 2013. The spot rate for modern DFDE vessels averaged $68,000pd in 2014, down from an average of $110,000 pd during 2013. Asian demand, which shot up following the 2011 Fukushima disaster, cooled down in 2014. The weak economic health of Japan, the re-starting of nuclear reactors in South Korea and a preference for coal by power utilities weighed on LNG shipping demand. The year gone by taught an important lesson that LNG is no longer a supply driven market and has to compete with other cheaper fuels (mainly coal) to carve a niche for itself.

In the coming year, when 37 new vessels are expected to join the feet, utilisation rates for LNG vessels are likely to remain under pressure as the demand from Asian countries weakens. The Japanese economy is currently struggling with deflation and high public debt, and although the government is trying to support the economy through aggressive monetary easing and increased public spending, there are no signs of improvement yet. Moreover, the Nuclear Regulation Authority has provisionally approved the safety case for two more reactors. Once all these plants become functional, LNG imports are likely to decline. In South Korea, some nuclear reactors shut during most of 2014 have restarted and are displacing LNG. These plants will further reduce the demand for LNG imports in the coming year. In the same line, Korea Energy Economics Institute has also projected that Korea’s LNG demand and imports will ease after 2015. However there is one bright spot that we could see while entering the new year and that was a fall in oil prices below $50/bbl. If oil prices remain low and LNG prices mirror the same, it might make LNG competitive with other fuels thus create demand for LNG and provide a boost to LNG shipping.