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LNG weathering the storm

At first sight, LNG as a transition fuel appears to tick all the boxes: the world has abundant supplies in most key regions; it is of course a hydrocarbon, but the cleanest carbon-based fuel by a long way; there is already a substantial global LNG infrastructure, with further rapid expansion in liquefaction and regasification facilities in progress; and LNG bunkering infrastructure is developing fast to fuel the growing number of ships designed to burn gas, rather than carbon-heavy fuel oil from the very bottom of the barrel.

However, as Russia’s invasion of Ukraine disrupts not only the world’s decarbonisation drive but also the energy security of some large trading blocs (notably Europe), there is growing concern that demand for LNG shipping capacity could well outstrip supply by a substantial margin.

A growing demand

Vast LNG expansion

For the moment, however, many analysts are broadly positive. In its latest review of trends, the research division of London-based shipbroking giant, Clarksons Research, has predicted rapid growth in LNG shipping around the middle of this decade. In LNG Trade & Transport 2022, Clarksons highlights no less than 116 million tpy of liquefaction capacity where construction has begun and plant is expected to come on stream during 2025 and 2026. Close to 10 million tpy more capacity is being built for commissioning in 2027, Clarkson said.

However, this is only part of the picture. Clarkson lists another 18 LNG liquefaction projects where FEEDs are underway with agreements signed and start-ups planned for 2025 and 2026. These total more than 130 million tpy of additional export capacity, more than 70% (95.9 million t) of which is under development in the US.

This is important because gas exports from the US are rising rapidly, despite the outage earlier this year resulting from a fire at the country’s export terminal in Freeport, Louisana. In fact, US LNG exports are rising so quickly that the nation is likely to displace both Australia and Qatar as the world’s largest exporter in 2022. Climbing export volumes are heading both west to Europe to replace dwindling pipelined gas from Russia to Germany through Nordstream 1, and east to Asia.

These figures only reflect Clarksons’ analysis of the two years, 2025 and 2026. Add in the other years of this decade, in other words up to 2030, and the numbers become truly eye-watering. Taking into consideration LNG facilities that are under construction, projects where FEEDs are underway and agreements signed, and proposed projects, the total export capacity figure soars to 753 million tpy. More than 38% of this volume – 289 million tpy – is planned for development in the US.

A huge shipping requirement

To put these figures in a shipping context, if every project on Clarksons’ list were to go ahead within the scheduled timeframe, the world would need more than 900 new LNG carriers to supplement the present ocean-going fleet of approximately 640 ships. The current orderbook has grown at record pace in recent months – some 105 new contracts had been placed by mid-July, more than any previous complete year on record.

Clearly, not all of these projects will go ahead for a variety of reasons. But even a conservative assumption of 50% being built would give a requirement of approximately 450 new ships. From Lloyd’s Register’s analysis outlined in this article, it is evident that LNG carrier construction on this scale is currently out of the question.

Reasons today for projects not proceeding are many and varied. But, with higher gas prices, more are likely to be viewed favourably than would have been the case this time last year. However, a significant number of projects are in far-flung parts of the world where logistics and security issues may overshadow investment decisions.

The current situation in Mozambique is a case in point. Force majeure was declared by TotalEnergies in April 2021 at its US$20 billion construction site following violent attacks by insurgents on local people in the Cabo Delgado region where the massive complex is being built.

The force majeure status is unlikely to change this year, according to reports, although the project will still go ahead. Of course, the economics have changed dramatically, initially for the worse, but now for the better because of spiralling gas prices. Strategies to limit the vulnerability of the plant are thought to be under close consideration, including the adoption of more floating LNG technology. At the time of writing, this could not be confirmed.

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