The International Energy Agency (IEA) has called for more speed in the transition from heavily polluting fuels to natural gas. In a recent report, the IEA noted that natural gas has already helped to limit the rise in global emissions since 2010 and offers an immediate opportunity for major additional emissions reductions given the right economic and policy conditions.
The contribution of gas to energy transitions varies widely across regions, between sectors and over time, the IEA noted, while conceding that, as a hydrocarbon, gas remains itself a source of emissions. Yet, the Agency said, it would still be possible to turn round the rising emissions trend and contribute to improvements in air quality through the wider adoption of gas.
The IEA’s report came well before the Covid-19 virus outbreak in China. Even if the spread of the virus is contained effectively over the first half of this year, many analysts suggest that it is likely to have a dramatic impact on the world economy and, by implication, energy demand in 2020. However, for LNG shipowners with a long vision, the IEA report will still have been a welcome read.
Many shipowners were already on a high. The world’s LNG trades have undergone a transformation as US terminals previously earmarked for imports have turned into major export hubs for long-haul cargoes, many to the East. Meanwhile, the Chinese government has embraced LNG as a source of power and the country has demonstrated consumption levels rising consistently in double digits for more than a decade.
New sources of LNG and fresh markets in various parts of the world have led to a structural change in LNG shipping. The market has transformed from one based on fixed long-term charter contracts to a more conventional shipping model with a buoyant spot market.
This has generated new opportunities for LR with its robust track record in gas shipping generally, and LNG design and construction in particular. Panos Mitrou, LR’s Piraeus-based Global Gas Segment Manager, sees a range of opportunities in new LNG trades and markets, floating LNG technology, small-scale LNG projects and LNG as a marine fuel.
The fleet itself, he points out, is expanding fast. Clarksons Research figures reveal that the 441 LNG tankers of more than 40,000 m3 at the beginning of 2017 had expanded to 550 by January this year, with a further 150 on order. The number of small units has also increased over the period, according to Clarksons’ data, from 31 ships in 2017 to 43 in January.
Mitrou also sees a new type of independent LNG tanker owners – some of them not far from his own Piraeus office – with a more risk-prone approach to business. Blue-chip Greek owners have entered LNG shipping in a big way, investing billions of dollars in new vessels, only some of which are deployed on long-term contracts. The sector now has an active spot market.
What role does LR play?
The arrival of new independent owners and significant fleet expansion has been met with enthusiasm by Mitrou and the wider team at LR. It is the class of choice for many gas shipowners, demonstrated by LR’s close involvement in various eye-catching projects, including the world’s largest floating gas production facility, Shell Prelude. It also classed the first gas-fuelled ropax vessel Viking Grace.
“Gas shipping is in our DNA,” Mitrou states. “We have always been and continue to be the class of preference for the greatest share of owners engaged in gas shipping and we have unparalleled expertise through our experience in floating LNG production. We also see a range of opportunities in the floating gas sector generally, including FSRUs and floating storage units (FSUs).”
This specific experience, Mitrou believes, also puts LR in pole position in the development of small-scale LNG technology, an increasingly important component of the LNG sector with major opportunities in both shipping and offshore. These focus on three main areas, Mitrou explains, in which LR has expertise to offer: LNG as a marine fuel; LNG as an off-grid source of power generation for industrial and residential requirements in remote areas and island communities; and small-scale LNG carriers and bunkering vessels.
In the small-scale LNG sector, LR’s close involvement in Chinese LNG development is an advantage. The country is a key player in small-scale LNG development, largely as a result of the government’s drive to cut air pollution. According to reports, China plans to build a wider LNG small-scale infrastructure, including 40 LNG bunkering stations on the coast and across its river network to service short-sea and inland waterway vessels.
LR committed to continuing LNG development in China
LR is working with six Chinese partners on the development of the first 220,000 m3 LNG carrier design with a GTT Mark III membrane containment system. The project comes at a key moment in China’s huge appetite for LNG, much of it shipped on long hauls for which the large new design is intended.
Although demand in the early weeks of the year fell sharply as a result of Covid-19, Chinese demand for LNG in normal times has broken all records. According to the latest issue of BP’s Statistical Review of World Energy, China’s consumption of LNG grew by an average of more than 13% a year in the decade to 2018. The increase in consumption between 2017 and 2018 was more than the entire consumption of France.
LR’s partners in the design project include the China Classification Society (CCS), COSCO Shipping LNG Investment (Shanghai) Co, COSCO Shipping Heavy Industry Co Ltd, Jiangnan Shipyard (Group) Co Ltd, the Marine Design and Research Institute of China, and the Shanghai Ship and Shipping Research Institute.
They are working together to develop a technical specification and general arrangement of the main systems. Meanwhile, LR and CCS are providing support services and ensuring full compliance with international regulations and conventions. Ultimately, once the design is finalised, the two classification societies will grant the design approval in principle, paving the way for the construction in China of the largest-ever LNG carriers, probably for deployment in the country’s own import trades.
Huge vessel requirement ahead
Today’s 150-ship LNG carrier orderbook may be sufficient to meet the requirements of LNG liquefaction projects currently under construction, but it will fall way short of vessel requirements for other projects currently in the front-end engineering design (FEED) phase and/or with agreements signed, according to Clarksons Research.
If all of these projects go ahead as planned this decade, more than 350 more LNG carriers will be required by 2030, the analysts estimate. Out of a total of 53 projects, 33 are in the US, six in Qatar, five in Canada, two in Australia, two in Russia, and one each in Cameroon, Congo, Djibouti, Israel and Mozambique. A further 61 projects, with nominal start-up dates this decade, are at the ‘Proposed’ stage, meaning that they may or may not get a green light. However, if they were to go ahead, Clarksons estimates that a further 359 LNG carriers would be required, with the vast majority in the large sizes.
Image of Panos Mitrou taken at the 8th annual Global LNG Bunkering Summit 2020, courtesy of Oil & Gas IQ.
Work on this article started in early January, weeks before the world started witnessing the fallout from Covid-19. We have endeavoured to ensure all the content is as timely as possible but acknowledge that the impact of this situation on world shipping is rapidly evolving and there is much uncertainty ahead.