Global LNG Exports Reach 362MT in 2019
During the fourth quarter of 2019, spot LNG freight rates continued to strengthen with average reported headline rates for MEGI/X-DF LNG carriers increasing by 66% from $74,800 per day to $123,800 per day, according to Flex LNG.
Rates increased steadily due to higher demand preparing for winter in Northern Asia, as well as continued floating storage, Flex LNG said.
Trading patterns and LNG pricing however, continue to favor Europe as the main destination for incremental uncommitted LNG volumes due to the low spread in gas prices between Asia and Europe, as well as greater infrastructure capacity in Europe for regasification and storage.
According to industry sources, global LNG exports reached 362 million tonnes for the full year of 2019, which represents year on year growth of approximately 11%.
The forecast of a record year for LNG Final Investment Decision (FIDs) in 2019 proved to be true with approximately 71 million metric tonne per annum (“mmtpa”) sanctioned in 2019, as FID was reached on Nigeria LNG Train 7 with a total capacity of 7.7 mmtpa before year-end.
However, the sharp increase in global liquefaction capacity is far from over yet, as several large greenfield and brownfield projects are also expected to take FID in 2020 and 2021.
Four LNG carriers were reported delivered in the fourth quarter of 2019, bringing the year count to 38 LNG carriers and three floating storage and regasification units (FSRUs).
During the fourth quarter 2019, fourteen new orders for LNG carriers were reported. By the end of the quarter, there were 510 active vessels above 125,000 cbm in the global LNG carrier fleet, excluding FSRUs.
The order book at the end of the quarter amounted to 116 conventional LNG carriers, of which 40 were reported as ‘uncommitted’. In the first quarter of 2020, we expect another six conventional LNG carriers to be delivered from yards.
Lower than expected tonne mile growth due to muted US - Asia trade and limited arbitrage opportunities has been a challenge for the LNG freight market.
In spite of the lower than expected tonne mile growth, LNG freight rates performed well in the fourth quarter of 2019, suggesting that recent years fleet growth to a large degree has been absorbed by the market.
The glut of liquefaction volumes continues to affect LNG prices, with the average Asian benchmark prices (JKM) averaging 5.4 $/Metric Million British Thermal Unit (MMBtu) in the fourth quarter 2019 compared to 9.1 $/MMBtu for the same period last year.
Average European LNG prices (NBP) came in at 4.9 $/MMBtu in the fourth quarter 2019 compared to 8.2 $/MMBtu for the same period last year.
The low LNG price environment continues as liquefaction capacity and production grows faster than LNG demand due to a warm winter also in 2019/2020, economic slowdown in China as well as the recent coronavirus outbreak which has caused disruptions in the logistical chains. These factors have contributed to a slump in demand resulting in both the TTF gas price in Europe and the JKM gas price in Asia to hit all time low levels.
With less demand for gas and all time low gas prices in backwardation, demand for shipping has been adversely affected so far in 2020. Consequently, availability of ships has increased rapidly while freight rates have been tumbling to a current level of about $50,000 per day for modern two stroke propulsion LNG carriers as of end of February 2020.
The severity and duration of the coronavirus and associated demand slump is difficult to predict, but industry sources expects China’s import growth to be reduced by approximately 2.6 to 6.3 million tonnes in 2020.
However, low gas prices also stimulate demand growth, so we do expect demand growth to pick-up again once the coronavirus situation is less disruptive. The long term outlook for the LNG industry continues to be well supported with expected annual growth in LNG trade over the next two decades to be about 3 to 4 per cent annually.
With a fleet of large modern ships with the latest generation efficient propulsion systems, Flex LNG is well positioned to capitalize on the global shift for cleaner energy.