Qatar Petroleum has invited tenders for the construction of more than 100 LNG ships. These ships are required to meet the ship requirements associated with the expansion of the Qatargas LNG liquefaction project and the Golden Pass LNG project in the US. Plus they will be replacement tonnage for old steam turbine ships in Qatargas’s shipping portfolio.
Although this prospective order is massive in size, it will have minimal impact on short-term charter rates. Continuing with the historical trends, the Qatargas orders are expected to be backed by long-terms charter contracts from LNG liquefaction projects where Qatar Petroleum has invested. However, if new orders are confirmed, LNG shipbuilding slots will become limited, in turn, pushing newbuilding prices.
Qatar LNG expansion to fuel LNG ship demand
Qatar plans to increase its LNG production capacity from 77 mtpa presently to 110 mtpa by 2024. Previously, Qatar Petroleum issued engineering procurement and construction (EPC) tenders for the four Liquefied Natural Gas mega-trains for its Qatari liquefaction project. In addition to serving Qatar’s domestic expansion plan, the new orders will also serve Qatar’s Golden Pass LNG project in the US. The Golden Pass LNG liquefaction project will have a nameplate capacity of 16 mtpa of LNG and is expected to come online by 2024. Together, these two projects alone are expected to generate demand for 60 LNG ships.
Replacement tonnage demand
Nakilat, Qatar’s national shipping company, has a fleet of 69 LNG ships comprising 24 conventional LNG ships (145,000-170,000 cbm), 31 Q-Flex (210,000-217,000 cbm) and 14 Q-Max (263,000-266,000 cbm). The company owns these LNG ships wholly or in joint venture with organisations such as K Line, NYK Line, Shipping Corporation of India, Teekay Shipping Corporation, Mitsui OSK line and Maran Gas. The average age of these ships is 10 years, but by 2030 the average age of this fleet will be approximately 21 years, so some replacement is likely.
Korean shipyards to benefit with these massive LNG orders
Qatargas has timed the tender to perfection to take advantage of lower newbuilding prices and adequate shipyard capacity. While newbuild prices have inched up a little over the last six months, they are still low when compared with newbuild prices in 2015. With sparse orders in the last three years, shipyards have ample capacity to take big LNG orders in our view.
We believe most of Qatar’s LNG ship orders will go to Korean shipyards as the country has previously used all three major Korean shipyards – Daewoo, Samsung and Hyundai – for building similar ships. However, we expect these orders to be staggered, as Qatar Petroleum has indicated that the company expects to order the 100 new LNG ships over the next decade.
Minimal impact on LNG charter rates
Qatar’s prospective order for 100 LNG ships is equivalent to about 23% of the existing LNG shipping capacity (assuming 100 LNG ships with 180,000 cbm capacities). However, we do not expect LNG charter rates to be affected by the delivery of these ships as they will be tied to the upcoming projects and hence will not be competing with other ships in the open charter market.