INTERVIEW: Milaha confident in LNG growth despite oil slump

Doha-based shipping giant Qatar Navigation (Milaha) Q.S.C., plays an important role in shipping huge quantities of liquefied natural gas all over the globe from Qatar’s Ras Laffan port, where the world’s biggest LNG export complex is located.

Qatar has been the world’s leading exporter of the chilled gas since 2006, with a total export capacity of 77 Mtpa.

Milaha has a 30 percent stake in Nakilat, the world’s largest LNG shipping company, and has varying ownership stakes in nine LNG vessels, which are under long-term charters to Qatari gas producers and exporters.

The LNG shipping market has evolved rapidly over the last years, driven by growth in LNG export projects, Japan’s nuclear shutdowns and the need for a clean-burning fuel.

However, due to last year’s oil slump, which is continuing in the first half of 2015, many shipowners and operators are facing tough times due to low LNG prices prompting them to delay, or even cancel some developments.

In an interview with LNG World News, Joseph Coutinho, CEO of Milaha Gas and Petroleum, discusses the challenges and implications of the oil slump on the LNG industry from Milaha’s perspective.

How do you see the current LNG shipping market and its progression throughout 2015?

“Following a very successful year in 2014, LNG shipping rates have dropped significantly since the beginning of the year prompted by market anxiety over the decline in the oil sector, which stalled and even halted some investments in LNG projects. Additionally, the rising numbers of LNG vessels will continue to put downward pressure on shipping rates.

Other factors to watch are the possible emergence of Iranian LNG exports which would mean an increase in supply, and Japanese nuclear energy production climbing again which means lesser reliance on LNG and other energy sources.

Despite all these volatility factors, we remain confident that the LNG market will continue to grow on the long run with new LNG terminals going online worldwide this year, and with LNG becoming a preferred source of energy in Asia and other parts of the world.”

What impact do these fluctuations have on Milaha’s LNG/gas business?

“I believe our geographic position in Qatar, one of the world’s largest producers and exporters of LNG, gives us a great advantage and provides a cushion against the volatility of the market. However, we are not entirely shielded, but we seek to minimize our exposure by diversifying our operations. For instance, in addition to its LNG-related operations,

For instance, in addition to its LNG-related operations, Milaha Gas and Petrochem (MGP) owns a 50% stake in Gulf LPG, which owns and operates 4 Very Large Gas Carriers (VLGCs). MGP also owns and operates harbour and marine service vessels at Mesaieed Port in Qatar on behalf of Qatar Petroleum.”

Two of the world’s largest LNG players, Royal Dutch Shell and BG Group of UK, recently announced a mega-merger which could create one of the largest LNG players in the history of the industry. Shell manages about 25 LNG carriers for Nakilat, in which Milaha owns a 30 percent stake.

How do you see this Shell/BG deal?

“The sharp decline in the prices in 2014 has made this sector an open field for opportunistic acquisitions. The merger was a smart move for Shell as it not only gives it access to new markets, but also makes it a strong player in the LNG market in particular.”

What implications will it have on Milaha’s business?

“Shell is one of Milaha’s key partners in the Middle East, but we do not foresee this deal with BG as having a direct impact on our business.”

What are Milaha’s plans for the group’s LNG business? Is Milaha considering buying stake in new LNG carriers, or even ordering a new one?

“The current situation in the oil and gas sector has forced us to adopt an even more prudent strategy. While it is true that we have a better financial and operational status than many of our peers, we need to focus on opportunities that entail less risk and that would enable us to continue to serve our customers at the same high level of standards as always.

We are currently in talks with the United Arab Chemical Carriers (UACC) regarding a possible combination of our respective product and chemical tanker businesses, which, if successful, would give us a stronger market position.”

LNG as fuel for ships is gaining more and more momentum. Nakilat Keppel Offshore & Marine is also currently involved in converting the Q-Max carrier Rasheeda to run on LNG fuel, the first Qatari Q-max carrier to be powered by the chilled gas.

What are your expectations on LNG as fuel in the future? Is Milaha considering to switch its non-LNG vessels to run on the chilled gas?

“Many ship owners are considering the use of LNG whether in their newbuilds or in retrofitted vessels in an effort to become environment-friendly and to comply with the increasingly stringent regulations. That said, there are several operational, financial, and technical challenges that must be taken into consideration before making the switch from conventional fuel to other alternatives, which include LNG, biofuel, and methanol among others.

Every ship comes with certain specifications and changing engine fuel can be a timely and costly process. We at Milaha believe in the importance of being environment-friendly and we have in the past few years taken several initiatives to comply and even exceed standards in that field. Like I mentioned above, switching to LNG vessels would be subject to a careful assessment to ensure that we are making the right move.”