667 vessel orders! The LNG ship market will experience a boom in the next 5 years

Although the growth of LNG shipping trade may stagnate in the short term due to the impact of the COVID-19 pandemic, the LNG shipping market will gradually enter a booming period within the next 5 years. It is estimated that the global market will need 667 LNG vessels by the end of 2026.

Korean media, citing predictions from the Norwegian investment bank Cleaves Securities, points out that from 2021 to 2025, LNG production will "surge like a tsunami," and the LNG shipping market will also enter a booming period.

In recent years, global LNG shipping trade has grown significantly. Between 2015 and 2019, trade volume increased by 43% to 356 million tons, mainly due to the impetus of export projects in the United States, Australia, and Russia, as well as the growing import demand from China, other developing Asian countries, and Europe. Before the COVID-19 pandemic, Clarksons had predicted that global LNG shipping trade would grow by 7% year-on-year in 2020, although the weak natural gas prices that already existed before the pandemic led to a generally low market sentiment. Clarksons' latest prediction shows that the growth rate of global LNG shipping trade volume in 2020 will fall to about 1%, and is expected to resume positive growth next year.

Clarksons previously stated that although the LNG market will face some pressure in the short term, many potential positive factors seem to continue to play a role. Shipping trade volume is still expected to continue to grow, reaching a total of 500-700 million tons by 2030. The current progress of LNG projects indicates that a larger-scale export growth will occur around 2025.

Currently, the demand for LNG is still on an upward trend. Spot freight rates have risen over the past two months as US LNG export terminals have stopped loading LNG. Therefore, LNG vessel owners face the risk of declining shipping revenue and company share prices. In terms of average freight rates, next year's situation will be similar to this year's, but the market fundamentals are expected to gradually deteriorate until 2023.

Although it is approaching the seasonal peak season, LNG spot freight rates may fall by 50% in the next 3 months. Currently, the total carrying capacity of the global LNG fleet is 92 million cubic meters (CBM). The total carrying capacity of new LNG vessel orders from 2018 to 2019 was 21 million cubic meters, so the delivery volume of newly built LNG carriers in 2021-2022 will reach a historical high.

Industry insiders believe that the LNG fleet capacity growth rate in 2021 and 2022 will be 9% and 6%, respectively. However, even if LNG transportation demand increases, it cannot fully absorb the newly invested LNG vessels into the shipping market, so the possibility of an increase in the idle rate of the fleet is also high. A positive factor is that the weak freight rate situation before 2023 may lead to insufficient investment in capacity by shipowners, thus increasing fleet utilization again.

Joakim Hannisdahl, Managing Director and Head of Research at Cleaves Securities and a globally renowned shipping stock analyst, said: "It is expected that around 2025, with the increase in newly launched LNG projects, freight revenue will also increase, and the super-cycle of LNG vessels will arrive. It is estimated that the global LNG shipping market will need 667 LNG vessels by the end of 2026."

Clarksons' data shows that new LNG vessel orders have remained at a high level since 2018. In 2018, a total of 77 new vessels were ordered, including 66 large LNG vessels of more than 140,000 cubic meters; in 2019, a total of 60 LNG vessels were ordered, including 50 large LNG vessels of more than 140,000 cubic meters; and so far this year, a total of 29 LNG vessels have been ordered, of which 25 are large LNG vessels of more than 140,000 cubic meters.

Currently, the total number of outstanding orders for LNG vessels globally is 123, and the size of the LNG vessel fleet is 557. There are many LNG projects planned or underway globally to be completed by 2029, and the annual increase in LNG transportation volume will reach 33 million tons from 2020 onwards, so it is expected that LNG vessel owners will add new vessel orders. In addition, large LNG projects in Qatar, the Arctic, and Mozambique are still underway, which are expected to provide more new vessel orders. In addition, considering the technological innovation of LNG vessel power systems in recent years, fleet capacity renewal may become a focus of market attention in the future (currently, 40% of the fleet capacity still uses steam turbines). Especially before the market enters a booming period, orders for newly built LNG carriers will be very abundant.

In addition, with the US government lifting energy export restrictions in 2016, the scale of LNG export terminal construction has continued to expand, and under the influence of factors such as global demand growth, US LNG exports have been hitting record highs every year.

Clarksons stated that LNG, as a clean and low-carbon fossil energy source, will continue to play a bridging role in the energy structure transformation process, promoting the transition from traditional fossil energy to new energy and renewable energy; there is also huge potential in marine fuel, and currently about 23% of global outstanding orders are for LNG-powered vessels. In addition, the geographical distribution of natural gas resources also means that it will bring huge growth potential to the LNG shipping market, even if the driving effect on different regions and different vessel segments is different. (Wang Chu)