Optimizing LNG shipping Portfolios – Realities, Uncertainties, Opportunities Author: Manon DUMONTIER – Poten & Partners Co-Authors: Doug BROWN, Poten & Partners Amokeye ADEDE, Poten & Partners Owned and presented by Host IGU Member Supporting Association
LNG Fleet Supply-Demand Balance Poten’s Base Case Owned and presented by Host IGU Member Supporting Association
The LNG fleet is growing more rapidly than the LNG demand Growth of the LNG Fleet* 600 400 350 500 On Order LNG Demand MMt/y 300 (138) Number of Ships 400 250 Operational Fleet** (408) 300 200 150 Global LNG 200 Demand 100 100 50 0 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 *excludes floating liquefaction and small-scale ships Source: Poten & Partners **excludes ships in (semi) lay-up
LNG trade has grown more complex, shipping distances have increased Global LNG Trade Routes and Flows, 2000 Global LNG Trade Routes and Flows, 2020 Source: Poten & Partners Source: Poten & Partners
Global LNG shipping demand could double between 2016 and 2030 Total LNG Ship Requirement Forecast for Trading • The ship demand is the number of ships required to 700 700 Number of Normalised Ships (160,000m 3 ) serve LNG trade, calculated as follows: Forecast 600 600 The annual ship requirement is calculated for o 500 500 contracted and uncommitted LNG volumes A 15% ‘trading allowance’ is included o 400 400 MMt/y • 300 300 LNG ship demand is estimated to rise from ~ 300 ships in 2015 to ~ 600 by 2030 – a ~ 100% increase, 200 200 compared to an LNG demand increase of ~ 80% over the same period 100 100 • The faster increase is due to the further increase in Atlantic Basin to Pacific Basin trade 0 0 2010 2015 2020 2025 2030 Source: Poten & Partners Ship Demand LNG Demand
Our ship supply projection considers only existing ships and firm orders LNG Ship Supply Forecast for Trading • When assessing ship supply on a year by year basis 700 into the future, the key following assumptions are Forecast 600 applied: Number of Normalised Ships (160,000m 3 ) Ship Supply 500 Only existing ships and firm orders are considered o 400 Undedicated Ships Ship utilisation rate is 345 days per year o Existing LNG ships are assumed withdrawn from o 300 service and scrapped after 40 years in service OR 200 when charter term ends – whichever is later Committed Ships Capacities are normalized to 160,000m3 o 100 A 15% “trading allowance” is included Source: Poten o & Partners 0 2010 2015 2020 2025 2030
New ships are required from 2019/ 2020 based on the fleet balance LNG Ship Supply & Demand Forecast • Based on the fleet balance the market does not 700 require new ships until 2019/2020 Forecast 600 • Longer-term, around 160 additional LNG ships are Ship Demand Number of Normalised Ships (160,000m 3 ) required by 2030 to meet rising demand and replace Ship Supply 500 ageing ships 400 Undedicated Ships Additional LNG Ship Requirement 200 300 150 (160,000m 3 ) No of Ships 200 100 Committed Ships 100 50 Source: Poten & Partners 0 0 2015 2020 2025 2030 Source: Poten 2010 2015 2020 2025 2030 -50 & Partners
LNG Fleet Supply-Demand Balance Uncertainties, opportunities: the effects of disruption and optimization Owned and presented by Host IGU Member Supporting Association
Endogenous factors may impact the total shipping balance beyond new project requirements • Replacement at a younger (or older) age than 40 years, or conversion • Increase in re-exports, currently difficult to predict/forecast • Change in the production assumption (unplanned maintenance, production above nameplate capacity) • Mismatch between location of the ship and spot cargo requirements • Change in trade route patterns assumptions ( eg geographical cargo swaps)
Closure of LNG traffic choke points would materially affect the total shipping balance Suez Canal Straits of Hormuz Straits of South Gibraltar China Sea Bab El Mandeb Panama Canal Malacca & Singapore Straits Source: Poten & Partners
Avoiding South China Sea could add an LNG shipping requirement of up to 30 ships by 2020 LNG Fleet Balance 600 • Key route affected by unrest in South South China Sea Closure Forecast China Sea would be Qatar to Far East Base Case 500 Number of Normalised Ships (160,000m 3 ) • Alternative using Lombok and Makassar 400 Straits adds ~ 1,000 nm each way, or ~ 2.5 extra days each way 300 200 • E.g. ~ 6,500 nm from Qatar to Tokyo via SHIP SUPPLY South China Sea vs ~ 7,500 nm via 100 Lombok and Makassar Straits Source: Poten 0 & Partners 2010 2012 2014 2016 2018 2020
Closure of Panama Canal could add an LNG shipping requirement of up to 40 ships by 2020 LNG Fleet Balance 600 • Panama Canal expansion due to open in June Panama Canal Closure Forecast this year Base Case 500 • Key route affected by Panama Canal closure Number of Normalised Ships (160,000m 3 ) would be US Gulf to Asia, hence the impact is 400 more visible towards the end of the decade • 300 Alternative via Suez Canal – significant increase in distance 200 SHIP SUPPLY • E.g. ~ 9,300 nm from US Gulf to Japan via 100 Panama vs ~ 15,200 nm via Suez (avoiding High Risk Area), or ~ 15 extra days each way Source: Poten 0 2010 2012 2014 2016 2018 2020 & Partners
Closure of Suez Canal could add an LNG shipping requirement of up to 60 ships by 2020 LNG Fleet Balance 600 • Key route affected by Suez Canal closure in Suez Canal Closure Forecast the future would be Qatar to Europe Base Case 500 • Alternative via Cape of Good Hope – Number of Normalised Ships (160,000m 3 ) significant increase in distance e.g. ~ 6,500 nm 400 from Qatar to NW Europe via Suez vs ~ 12,500 nm via Cape of Good Hope (avoiding HRA), or 300 ~ 15 extra days each way 200 Had Suez Canal been closed in the o SHIP SUPPLY immediate aftermath of Fukushima, impact 100 would have been by requirement for ~ 70 additional ships, due to a large number of Source: Poten intra-basins diversions 0 2010 2012 2014 2016 2018 2020 & Partners
Even when choke points can be transited, cost of shipping can be a major diseconomy of LNG Selected 2014 shipping costs to Southeast Asian countries • Poten has looked specifically at South-East 2.5 Asia, an obvious candidate for shipping 2.29 2.1 Shipping cost ($/MMBtu) optimization through cargo swaps 2 1.6 1.48 1.5 Historically a major exporter of LNG o In recent years, has also imported o 1 0.75 0.71 growing amounts of LNG to support its 0.44 robust economic growth and associated 0.5 0.2 power generation requirements 0 Despite continuing large LNG production o within the region, LNG imports come from as far away as Trinidad Source: Poten & Partners
The size of the prize is overwhelming Estimated potential savings from intra-regional LNG trade in Southeast Asia • Southeast Asia would have gained in ̴US$ 200 million just in 2014 - almost the 400 cost of a new LNG ship - had it maximized 350 opportunities for cargo swaps within region 300 This $200 • Devil is in the details and swaps initiative MM prize will 250 have been very limited to date by only grow implementation issues $m 200 * Calculated for 150 Concerning liabilities for non-delivery or Thailand, Malaysia, o Singapore and off-spec supply and negotiations over the Indonesia LNG 100 calculation of the gains from optimization imports and the split of the same between 50 counterparties have blocked the way to ‘yes.’ Source: Poten & Partners 0 2014 approximate Notional ASEAN only * shipping cost trades
A growing need, plenty of work still to be done • Long-haul LNG trade is growing, largely as a result of US exports under construction • LNG ship demand is projected to increase around 20% faster than LNG trade itself • Long-haul trade is particularly exposed to disruption at shipping choke points – If choke points are closed, “normal” industry trading reserves of shipping capacity, around 15% of total, may be insufficient • Even without choke point concerns, the high shipping cost for long-haul trade argues for optimization, e.g., through cargo swaps – Seizing the prize will require a new focus for the LNG industry, which has generally developed conservatively, from the individual venture up – Current industry conditions, reflecting severe drop in oil prices, may mean the time is ripe for change
NATURAL GAS & LNG CONSULTI NG CONTACTS: AMERI CAS (NEW YORK) AMERI CAS (HOUSTON) EUROPE, M. EAST, AFRI CA ASI A PACI FI C Contact: Jim Briggs Contact: Doug Brown Contact: Graham Hartnell Contact: Stephen Thompson Email: jbriggs@poten.com Email: dbrown@poten.com Email: ghartnell@poten.com Email: sthompson@poten.com Tel: + 1 212 230 2000 Tel: + 1 713 344 2378 Tel: + 44 20 3747 4820 Tel: + 61 8 6468 7942
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