Ship-grabbing frenzy ahead of schedule! The LNG ship market is "exploding," making vessels hard to find.

One-year charter rates for LNG carriers have reached US\$120,000 per day, nearing a 10-year high. New orders for large LNG carriers have reached 61, a more than fourfold increase year-on-year, with delivery dates extending to 2026 and beyond.

The Russo-Ukrainian crisis and Western sanctions against Russia have reshaped the global energy landscape, leading to a surge in LNG demand and a shortage of vessels. Daily charter rates for LNG carriers have skyrocketed, and new orders for LNG carriers have seen both price and volume increases. More and more shipyards are entering the LNG carrier market, indicating that the LNG carrier market is experiencing its best opportunity ever.

The rush for LNG carriers begins early! Daily charter rates soar, nearing a 10-year high.

Poten & Partners recently stated that the spot freight rate for 160,000 cubic meter LNG carriers on the Atlantic route has reached US\$100,000 per day, while the spot freight rate in Asia or east of Suez is US\$85,000 per day. Both are significantly higher than the average price this year. In comparison, the average annual price in Asia is US\$49,000 per day.

Poten & Partners points out that spot freight rates for LNG carriers have been very strong since May, after bottoming out in March. Soaring LNG demand and buyers avoiding Russian cargoes and vessels due to the Russo-Ukrainian conflict have led to more long-term charter contracts, thus restricting the supply of vessels in the spot market.

In addition, the number of long-term charters has also increased significantly recently, with shipowners withdrawing capacity from the spot market. Poten & Partners says that 10-year charter contracts, unseen for many years, are now being seen. Buyers who struggled with transportation shortages during the past two winters are turning to long-term charters, so fewer LNG carriers will be ending their charters in the coming months, exacerbating the supply shortage.

Meanwhile, time charter rates for LNG carriers are also rising sharply. Sources say that several energy companies, including Shell, TotalEnergies, and Sinopec, are engaged in an early annual scramble for vessels to ensure sufficient capacity to transport LNG during the peak winter demand season. Typically, the rush for LNG carriers occurs at the end of the Northern Hemisphere summer, but this year it has begun before the summer arrives.

According to Clarksons Platou Securities, the daily charter rate for one-year LNG carrier charters has reached US\$120,000, a year-on-year increase of over 50%, nearing the high of US\$140,000 per day in 2012. Industry executives say that energy companies are seeking to lower daily charter rates by negotiating extended lease terms.

Oystein Kalleklev, head of LNG carriers Flex LNG and Avance Gas, said: "The market has exploded! It's difficult to find any vessels available for long-term charter in the market."

Industry insiders say that after the outbreak of the Russo-Ukrainian conflict, Europe imposed energy sanctions on Russia and turned to importing LNG from the United States to make up for the energy gap. This is one of the main reasons for the recent surge in international LNG carrier prices. The EU has pledged to reduce its reliance on Russian natural gas by two-thirds by the end of this year and will import an additional 50 billion cubic meters of LNG, igniting the LNG market.

According to data from the U.S. Energy Information Administration (EIA), in the first four months of this year, nearly three-quarters of U.S. LNG was shipped to Europe, with exports to Europe and Japan more than triple the average level of last year.

Meanwhile, Poten & Partners mentioned that the Freeport LNG export terminal in the United States was temporarily shut down due to a fire, but this did not affect the rise in spot freight rates for LNG carriers. Poten & Partners estimates that the Freeport LNG export terminal will remain closed until the end of the month, and the supply disruption should have some impact on the market. Any loss of supply anywhere means a loss of demand, but this has not been seen yet.

LNG carrier orders and prices hit record highs, tight shipbuilding capacity attracts more shipyards.

Since the COVID-19 pandemic, new orders for LNG carriers have continuously set new historical records. Despite this, due to the continuous growth in freight demand and environmental regulations accelerating the retirement of older vessels, the shortage of LNG carrier capacity may continue for a long time.

Following the record-breaking order boom in 2021, the LNG carrier construction market has remained hot this year. According to Clarksons, as of the end of May this year, the global new order volume for large LNG carriers of 174,000 cubic meters and above has increased by more than four times compared to 14 vessels in the same period last year, reaching 61 vessels, while the annual order volume for large LNG carriers last year was 75 vessels.

In addition to the increase in order volume, LNG carrier prices have also hit record highs. According to Clarksons, the price of 174,000 cubic meter large LNG carriers has continued to increase this year, currently reaching US\$229 million, continuously setting new historical records. Recently, Daewoo Shipbuilding & Marine Engineering and Hyundai Heavy Industries Group in South Korea have received LNG carrier orders from overseas shipowners, with the price of a single vessel approaching US\$240 million.

Although South Korean shipbuilders still hold a leading position in the large LNG carrier market, Chinese shipbuilders are accelerating their pursuit. Of the 61 large LNG carrier orders in the first five months of this year, 39 were received by the three major South Korean shipbuilders, and the remaining 22 were received by Chinese shipbuilders. This figure has already exceeded the 14 orders received by China last year.

Analysts believe that due to changes in the international energy structure and the requirements of new maritime environmental regulations, the demand for LNG carriers will continue in the short term. However, limited shipbuilding capacity is restricting the expansion of the LNG carrier fleet. For a long time, only three major South Korean shipbuilders and Hudong-Zhonghua have been able to build 170,000 cubic meter ultra-large LNG carriers. Based on historical data, the annual output of LNG carriers does not exceed 50 vessels.

After container ship orders hit a record high last year due to the pandemic, container ship backlog orders occupied most of the shipbuilding capacity of Chinese and South Korean shipyards, leaving almost no capacity to meet LNG carrier demand. Under the current circumstances, more LNG carrier orders are queuing up, and the delivery time provided by shipyards has been extended to 2026 and beyond.

  An executive at Hyundai Heavy Industries Group, the world's largest LNG carrier builder, said that the delivery slots of Chinese and South Korean shipyards have been occupied by a large number of new orders. Currently, Hyundai Heavy Industries Group's capacity until 2025 is almost saturated. According to this executive, Hyundai Heavy Industries Group can build 20 to 22 LNG carriers per year, and container ships and LNG carriers each account for about 30% of its existing delivery slots.

In addition, due to labor shortages, South Korean shipyards are also struggling to operate, and they also have to deal with the problem of the price of key raw materials, steel plates, almost doubling.

Against this backdrop, more and more shipyards are actively seeking to enter the LNG carrier construction field. Earlier this year, Jiangnan Shipyard and CSSC Huangpu Wenchong Shipbuilding successively received orders for large LNG carriers, forming a new three-legged situation of Hudong-Zhonghua, Jiangnan Shipyard, and CSSC Huangpu Wenchong Shipbuilding, changing the past disadvantage of Hudong-Zhonghua being the only enterprise participating in international competition. Recently, there have been reports that Nantong COSCO KHI Ship Engineering Co., Ltd. and Yangzijiang Shipbuilding are also seeking to enter the large LNG carrier construction market.

Beyond China and South Korea, Mitsubishi Heavy Industries of Japan plans to restart its large-scale LNG carrier business, primarily targeting the membrane-type LNG carriers built by Chinese and South Korean shipbuilders. It will assist by providing design drawings and procuring some equipment, and construction will take place at other shipyards in Japan. Previously, due to the price advantage of South Korean shipbuilders, Mitsubishi Heavy Industries had not received any LNG carrier orders since 2015, with its last LNG carrier delivered in September 2019.

However, industry experts believe that LNG carriers are internationally recognized as "triple-high" vessels—high technology, high difficulty, and high added value. For new shipyards entering this field, it will take several years to acquire the professional technology and capabilities for large-scale construction and production of LNG carriers.