Liquefied natural gas market update

18 December 2015

A special event hosted by JLT Specialty’s marine team in London heard from GasLog’s shipping expert on what’s behind a rising demand for liquefied natural gas (LNG) carriers worldwide.

On Friday 23 October 2015, JLT Specialty’s marine team hosted a special event to update the market on the latest developments in liquefied natural gas shipping. Sean Woollerson, Senior Partner in the Marine division at JLT Specialty, opened the discussion and introduced shipbroking expert David Chapman, Head of Chartering at GasLog, who gave an engaging presentation.

Chapman told delegates that the global trade in liquefied natural gas is about to be transformed by a slew of new production facilities and trade routes opening up. By 2030, the volume of LNG trades globally will have doubled to 500 million tonnes per annum and, with this, a sharp rise in demand for LNG shipping capacity is anticipated.

Chapman said: “It’s an exciting time for LNG carriers, with lots of new suppliers due to start producing over the next few years, and more opportunity to do business in new ways.”

Rising Demand

Australia is leading the boom in LNG production, with new facilities at Curtis Island, Queensland and The Gorgon Project in Western Australia helping it to overtake Qatar to become the world’s largest LNG exporter in 2016. By 2019, new production facilities will have transformed the US from an importer into an exporter of LNG, as it eclipses Australia to become the global number one. Additionally, new facilities in Canada, Mozambique and Peru are poised to add to world volumes of LNG.

“Many new projects have either reached final investment decision (FID) stage, or are about to do so,” Chapman said. FID is the point at which all joint venture partners in an LNG project commit their money, with first gas flowing about five years later. GasLog recently announced a new USD 1.3 billion facility with which it will build eight new ships by 2019, in a bid to meet the growing demand for LNG carriers.

Woollerson said: “We are ideally placed to support the expanding LNG market where we currently work with around 40 per cent of the world’s fleet. Over the past 25 years we have developed our own knowledge of the LNG industry in order to understand the challenges and innovations specific to that trade, which has helped us provide the best coverage and most cost effective solutions for our clients.”

Old Models

LNG producers are historically averse to shipping risk, relying on what’s known as the ‘A to B model’ whereby long-term contracts provide for transporting LNG to a fixed destination. Traditionally,LNG deals were negotiated between governments or national energy producers, and involved 20-year, multi-billion dollar investments in facilities and power generators to enable liquefaction at one end and re-gasification at the other. Shipping featured only as a tiny piece of the whole and, once a deal was signed, terms were very inflexible. By comparison, chartering for other types of cargo, and the sale and purchase of other kinds of ships, is more open to negotiation.

“There is a huge aversion to shipping risk which comes with A to B,” Chapman said. “If you spend USD 15 billion or USD 30 billion on an LNG facility, that needs to pay for itself by a constant flow of gas over 20 years. You aren’t going to potentially miss ships on the charter market. Instead, you’re going to eliminate cargo risk.”

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For more information, contact Sean Woollerson, Partner in the Marine Division on +44 (0)20 7558 3864

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