Drewry: cargo diversions threatening LNG shipping sector

Shipping consultancy Drewry believes that demand for LNG vessels in the long term could come under pressure if Asian buyers continue diverting contracted supply from the US to Europe and Latin America. 

The consultancy on Wednesday said it has been maintaining a bullish long-term outlook for LNG shipping for quite some time and expects rates to improve substantially from 2018 onwards. One of the major reasons for this outlook is the expansion in US LNG supply.

One of the major reasons for this outlook is the expansion in US LNG supply, Drewry said.

Since most new LNG export capacity in the US will start to come online from 2018 onwards and almost 85-90 percent of this supply has been tied to contracts, the trade will create demand for a large number of vessels.

However, the LNG market has changed considerably from the time when these contracts were signed and so Asian buyers are looking to offload their contractual supply. If more Asian LNG buyers start diverting their US cargoes either to Europe or Latin America, this could substantially reduce the demand for LNG ships, taking into account the shorter hauls from the US to Europe or to Latin America, Drewry said.

“Although the capacity diverted so far by Asian buyers is not significant enough to negatively impact LNG shipping, if this trend continues and more Asian buyers follow suit, it will reduce demand for LNG vessels”, said Drewry’s Shresth Sharma.

Drewry analyzed three scenarios based on the 53 mtpa of capacity currently being built in the US. Hence, if 60 percent of this capacity reached Asian markets while 30 percent and 10 percent respectively goes to Europe and Latin America, 85 vessels would be required to carry the tonnage from the US.

However, if Asian buyers continue to divert their contracted supply and only 30 percent reaches Asia, while 40 percent and 30 percent goes to Europe and Latin America respectively, a demand for only 68 vessels would be created.