China will drive future LNG growth – but what tonnage will it need to support this?
WHEN assessing future demand forLNG imports and LNG ships, China is the great unknown.
There is no doubt that its demand for both those things will increase. How much they increase will determine how many ships China needs to build this decade.
Suggestions that China could need up to 60 new LNG ships in the next five years seem high. Lloyd’s List Intelligence analysis suggests that to carry 50% of its LNG imports,China’s need for new home-built LNG ships could be as few as three or as many as 14 new ships by 2016, depending on how they are deployed.
By 2020 this could rise to more than 30.
Estimates of future Chinese LNG demand depend on price, domestic production and the balance between pipeline gas and LNGin meeting supplementary demand.
Chinese vessel demand is also dependent on two things. First, what percentage of LNG imports China wishes to carry on home-built vessels. Second, how these vessels are deployed.
Its decisions on both will affect existing LNG shipowners, particularly those offering short-term charters and those with uncommitted orderbook tonnage.
China wants to increase the percentage of imports carried by its own ships to 50%.
In 2011, 45% of the country’s imports were carried by five Chinese-built LNG ships, which means – in this sector at least – that China is already close to its target. Achieving this only requires five ships, because they operate exclusively on voyages from nearby Australia and Indonesia.
At the moment, China’s LNG ships are not deployed on long-distance voyages or for spot cargos. Its need for ships will increase if it shifts its cargo sourcing further afield and wishes to do so with its own ships.
Lloyd’s List Intelligence’s analysis on vessel requirements assumes that LNG vessels in future will operate as they do now, on round voyages where 50% of their time is spent in ballast, rather than by triangulating.
Xiaoyi Mu, lecturer in energy at the University of Dundee, told the LNG Global Congress in London in June that Chinese LNG demand will rise to an estimated 30m tonnes a year in 2015, the maximum it can be based on import terminal capacity.
If all planned LNG terminals are built, China’s maximum capacity will be around 45m tonnes a year by 2018.
If China imports 30m tonnes a year by 2016, half sourced from Australia and half from the US via the Panama Canal, then it will need at least 38 vessels of 160,000 cu m to service this demand. If vessels from the US sailed via the Cape of Good Hope, an additional 12 ships would be required.
This means a maximum of around 50 vessels would be needed to service Chinese LNG demand in 2016. Assuming vessels do use the Panama Canal from the US, achieving the objective to carry 50% of this in Chinese-built ships would require up to 19 vessels, 14 more than are in operation at the moment.
However, estimates of future growth of the Chinese LNG fleet need to take into account how the ships will be deployed.
If the future Chinese fleet is deployed mainly on long-term local contracts, such as those from Australia at present, then no more than eight Chinese-built ships will be needed to carry half China’s import volumes, only three more than are currently in operation.
Looking further into the future, if China builds all its planned LNG terminals, capacity could increase to 45m tonnes a year by the second half of the decade. For the sake of this analysis, an optimistic estimate of 57m tonnes per year capacity by 2020 has been used. This would mean 2020 demand being double that estimated for 2016.
If half the LNG comes from Australia and half from further afield, the base number of vessels needed to service this demand would be 75, of which 16 will be needed for the Australia trade. This assumes that any trade from the US uses the Panama Canal.
By 2020, it is conceivable that China may have signed up for volumes from US export projects. In this scenario,China could need more of its own ships than the 16 deployed on the Australia trade. If Chinese ships were to carry 50% of the cargoes from Australia and from the US, 33 vessels would be needed.
There are currently just five Chinese-built LNG ships in operation, all from the same yard. To meet its 50% objective, China is likely to need to build between 11-27 ships to 2020.
Owners with uncommitted orderbook tonnage will hope for the lower figure. Tonne-mile demand will be higher if the current trading pattern is retained. Chinese ships service local trades, while other shipowners step in for the longer-distance routes.
Data for this article is provided by Lloyd’s List Intelligence LNG Channel.
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