Drewry: Cargo Diversions Could Cut Demand for LNG Ships

Illustration; Image Courtesy: Hyundai Heavy Industries

The demand for liquefied natural gas (LNG) vessels in the long term could be reduced if Asian buyers continue to divert their contracted supply from the US towards Europe and Latin America, according to shipping consultancy Drewry.

Due to the expansion in US LNG supply, Drewry has been maintaining a bullish long-term outlook for LNG shipping and expects rates to improve substantially from 2018 onwards.

Since most new LNG export capacity in the US will start to come online from 2018 onwards and almost 85-90% of this supply has been tied to contracts, the trade will create demand for a large number of vessels.

However, the LNG market has changed considerably from the time when these contracts were signed and so Asian buyers are looking to offload their contractual supply.

If the trend persists, the demand for LNG ships could drop taking into account the shorter hauls from the US to Europe or to Latin America.

“Although the capacity diverted so far by Asian buyers is not significant enough to negatively impact LNG shipping, if this trend continues and more Asian buyers follow suit, it will reduce demand for LNG vessels,” Shresth Sharma, Drewry’s lead LNG shipping analyst, said.

If 60% of 53 mtpa of capacity currently being built in the US reached Asian markets, while 30% and 10% goes to Europe and Latin America, respectively, 85 vessels would be required to carry the tonnage from the US, according to Drewry.

However, if Asian buyers continue to divert their contracted supply and only 30% reaches Asia, while 40% and 30% goes to Europe and Latin America, respectively, a demand for only 68 vessels would be created.

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