4 - LNG Shipping

LNG Trading & Logistics
LNG Shipping
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Contents
• What is LNG & LNG Shipping?
• What is the significance of Transportation Costs in LNG Value Chain?
• What are the LNG Shipping Demand fundamentals ?
• What is the proposed Demand /Supply Model?
• What are the types of Tanker Technologies used in LNG Shipping?
• What are the existing rules and regulations pertaining to LNG Carriers?
• What are the main Containment Systems in LNG Shipping?
• What are the different capacities of the vessels ?
• How LNG Trading & Chartering can create flexible sourcing and delivery
solutions for regasification projects?

What is LNG & LNG Shipping?
• Liquefied Natural Gas (LNG) provides a cost-effective means for transporting
natural gas overseas by super-cooling it to a liquid form, reducing its volume
by approximately 1/600th of its gaseous state.
• The LNG shipping industry continues to grow rapidly with global demand for
LNG expected to increase by more than 50 percent by 2030.
• Liquefaction : Natural gas is super cooled to a liquid state at approximately -
260 degrees Fahrenheit at a liquefaction facility while reducing the volume to
1/600th of its original volume allowing for economic transportation.
• Shipping : LNG shipped from liquefaction facilities to import terminals or FSRUs

on specialized ships with containment systems to insulate the LNG in its liquid
form.
• Regasification : LNG is returned to its gaseous state either at a land based
regasification terminal or a floating storage and regasification unit (FSRU) and
delivered to end users via pipeline.

• Economics : Costs include liquefaction costs of ~$3.00/MMBTU,
shipping/fuel costs of ~$1.50-$3.50/MMBTU, and the cost of the gas at
~$4.00/MMBTU in a low cost region for a total delivered cost of ~$8.50-
$10.50/MMBTU relative to a market price of ~$12-$15/MMBTU in Europe
and Asia based on $100/barrel crude oil as gas in Europe and Asia is
typically priced at 11-15% of the price of crude on an energy equivalent basis.
What is the significance of Transportation Costs in LNG

Value Chain?
• The global LNG business has been described as a “value chain” containing
four components:
• (1) Exploration and Production, (2) Liquefaction,
• (3) Shipping, and (4) Storage and Regasification,
providing natural gas for delivery to several categories
of “end user.”
• To attract investors to an LNG project, the price of a unit volume of gas
delivered into a pipeline must at least equal the combined costs of
producing, liquefying, transporting, storing, and revaporizing the gas, plus the
costs of the capital needed to build necessary infrastructure and a
reasonable return to investors.

Value Chain?
• The largest component of the total cost of the LNG value chain is usually the
Liquefaction Plant, while the Production, Shipping, and Regasification
components account for nearly equal portions of the remainder.
• Technology improvements have reduced costs in all components of the LNG
value chain during the last 20 years.
• Several factors improved efficiency through design innovations, economies of
scale through larger train sizes,17 and competition among manufacturers
have led to a drop in capital costs for
Liquefaction Plants from $600 per ton of capacity in the late 1980s to about
$200 per ton in 2001.
• Costs have dropped for expansions to existing plants as well.

Value Chain?
• Transportation accounts for 10 to 30 percent of the cost of the LNG value
chain.
• Carrier ships often are owned by LNG producers, but also sometimes are
built as independent investments separate from specific LNG projects.
• The evolution of LNG transport ships has been dramatic. While the first
LNG carrier was a converted freighter with aluminium tanks insulated with
balsa wood, modern LNG carriers are sophisticated double hulled ships
specifically designed for the safe and efficient transportation of cryogenic
liquid.

Value Chain?
• The magnitude of the total investment required to build and operate a complete
LNG value chain (approximately $7–10 billion) requires the sort of economic
power historically held by only countries or very large corporations.
• One way to minimize the substantial risks has been to obtain long-term supply
contracts (20–25 years in duration), with a “take or pay” clause that obligates
buyers to pay for gas at a
certain price, even if markets do not exist.

Value Chain?
• Complementing long-term contracts, a spot market and short-term
contracts25 have emerged in the last five years.
• Factors influencing the emergence of the spot market include some global
overcapacity in liquefaction, an increase in the number of LNG
• tankers, and increased contractual flexibility across the various components
of the LNG value chain.
• These factors make it easier for exporters to sell their LNG and for importers
to buy LNG, when and where it makes the most economic sense.
What are LNG Shipping Supply Fundamentals?

• LNG carrier current order book/fleet ratio remains below average levels at
~28.5% of existing fleet
• Speculative ordering remains limited due to significant capital requirements,
limited bank financing availability, and technical expertise required
• Relatively few shipyards possess technical know-how to build an LNG ship;
existing new building orders placed at only 8 shipyards.
• China has yet to get up the learning curving on building LNG ships with just
1yard building ships and at a higher cost than South Korean builders.
What are LNG Shipping Supply

Fundamentals ?
• The LNG shipping market has evolved over the last decade, driven by
growth in global liquefaction capacity and demand in the Pacific Basin.
• The order and delivery of LNG vessels is quite cyclical in nature and
2014 marked the start of the next oversupply in LNG shipping capacity.
• With growth in the trading of spot and short-term LNG cargoes,
fluctuations in spot shipping charter rates have had an increasingly
important impact on the pricing and flow of LNG
• The wave of ordered LNG new builds began to flood the shipping market in
2014, with 28 conventional carriers delivered by the end of the year.
• In total, the active global fleet comprised 373 vessels excluding vessels
equal to or less than 30,000 cm in capacity – for a combined capacity of 55
mmcm.
• The growing availability of LNG vessels continues to put pressure on spot
market charter rates.
• The continuous wave of new builds hitting the market in 2015 will further
push the LNG
• shipping market deeper into a period of oversupply, putting more downward
pressure on spot charter rates in the near term.
• Additionally, the spot charter market has evolved into a multiple tier market,
with older steam vessels competing with more
• efficient newbuilds to find fixtures.
What are Containment Systems ?

• There are two main containment systems: membrane (around 70% of in
existence or on order ships) and spherical Moss (30% approximately).
• Membrane ships have such advantages in trading as lower Suez Canal
transit costs and faster cool down times.
• However, the main advantage of the spherical Moss system is the reduction
of sloshing issues, movement of the free surface of the LNG within a
compartment of the vessel and internal fluid dynamics that interacts with the
vessel and influences the dynamic stability of the ship, which are important
mainly in rough sea conditions.
What are Containment Systems ?

• About half of the LNG fleet is of the membrane design, with the other half of
the spherical or Moss® design.
• As of 2004, about three-fourths of the new LNG ships under construction or
planned were of the membrane design due to innovations aimed at
increasing cargo capacity in a given hull size, reducing capital costs and
overall construction time.
• A small number of ships in service, built by the IHI shipyard in Japan, feature
a self-supporting prismatic tank design.
• Like the spherical tank, the prismatic tank is independent of the hull.
• Any leaking LNG evaporates or flows into a pan below the tank.
Photo of Spherical Moss Vessel
Photo of Membrane Vessel
What are the different capacities of the vessels ?

• Historically, most LNG transport has been carried out in large-scale LNG
carriers to ensure the most economical deliveries from liquefaction plants to
buyers, distributors and end-users.
• The industry has experienced a major step up in ship size .
• Capacities of the LNG carriers ranged from 80,000 to 135,000 m3 until 2006,
when LNG ships of 200,000 and 260,000 m3 were constructed in conjunction
with mega-trains in Qatar.
• Substantial LNG supply expansion projects in Qatar have driven much of the
increase in ship sizes.
What are the different capacities of the vessels ?

• The Qatari projects (Rasgas and Qatargas) have already ordered 45 ships
bigger than 200,000 m3, 14 Qmax (263,000-266,000 m3) and 31 Qflex
(209,200-217,300 m3).
• The reason behind this larger size is the further destinations expected for
these volumes and the consequent savings in the LNG shipping.
• Substantial LNG supply expansion projects in Qatar have driven much of the
increase in ship sizes.
What are the different capacities of the

vessels ?
• Regasification terminals are adapting their facilities to suit the dimension of
these larger vessels.
• The physical restrictions include storage capacities, strength and length of
the jetties, and fenders and mooring equipment.
• The physical geography of the ports (water depth and manoeuvring space) is
another issue in some locations as river terminals.
• However, the Qmax and Qflex have experienced difficulties unloading in
some Regasifications terminals.
• The most likely trend in the size of tankers for the next several years is likely
to be the Panamax size, i.e., maximum tanker size accepted in the Panamá
Canal after the expansion, 175,000-180,000 m3, at the same time that
development of small LNG carriers has appeared as a way of addressing
constraints and restrictions at numerous smaller ports.
What are the different capacities of the vessels?

• LNG companies build most LNG ships for a specific project, then own and
operate them thereafter.
• Construction costs have dropped from $280 million in 1995 (for a 138,000-
cubic-meter-capacity ship) to $150 to $160 million today still more than
double the cost of a crude oil tanker.
• Most added costs relate to the construction of insulated tanks.
• LNG shipping costs vary based on the ship’s operating and amortization
costs, the size of the cargo, and the distance
• transported.
What are the types of Tanker

Technologies used in LNG Shipping?
• In the 3D CAD image and design drawing shown below of the tank planned for
the Timor Sea LNG Project, a conventional LNG on‐shore tank is constructed on
and integrated with a concrete gravity base structure (CGS) which acts as a
transport barge and then a foundation when ballasted on the shoal with
seawater.
An Overview of LNG Ships World Wide.

• LNG shipping is a niche market composed of around fifty medium- to large-
sized companies.
• Traditionally, the largest shipping companies are those affiliated with National
Oil Companies, such as Nakilat (Qatar), MISC (Malaysia), Bonny G.T.
(Nigeria) and NGSCO (United Arab Emirates).
• However, there are many other players who possess or are rapidly building
commeasurable shipping capabilities
• A rule of thumb is that every incremental 1 Mt of liquefied natural gas
production per year responds to a demand for 1–2 additional LNG carriers,
depending on the size of the carrier.
Current and ordered LNG Fleet.
An overview of LNG Ships world wide..

• By 2013, there is a global LNG fleet of 362 vessels with a total transportation
capacity of 24 Mt (International Gas Union, 2013), which implies an average
cargo turnover rate of 11 to 15 times per year, given the 237.7 Mt trade in
2012 and an idle rate between 10% and 30%.
• The average size of LNG carriers has been increasing in recent years due to
the introduction of Q-Series types.
• In 2012, the average capacity was approximately 148,000 cubic meters
(capable of carrying about 66,000 ton LNG).
• There are relatively few shipyards that possess the technical capability to
build LNG carriers.
• Samsung, Hyundai, and Daewoo are the largest among them.
• However, new entrants and a downturn in other shipping markets have
lowered the cost of new ships, from about $260 million in 2008 to about $200
million in 2012.

• South Korea still dominates the market, taking 85% of the new building
contracts in 2012, while Chinese and Japanese companies take 9% and 7%
respectively (BRS, 2013).
• The charter rate can be quite volatile both for short-term and long-term
contracts.
• For instance, the spot price for a median size carrier could vary from $30K
per day in 2010 to as high as $160K per day in early 2012 (Mavrinac, 2013),
implying a payback time for ship owners between 4 and 20 years.
• This can translate into a price range of 0.9 to 5 cents per day per mmbtu.

• Moreover, considering that 0.1–0.25% of cargo (Dobrota et al., 2013)
converts to gas each day, we can roughly estimate a total shipping cost
per mmbtu.
• For example, putting this into the context of trade between Qatar and
Japan, on a round-trip voyage of 28 days (13,000 nautical miles) with an
estimated idle rate of 15%, we can derive a shipping cost of $0.31–2.2
mmbtu.
• The higher end coincides well with the actual figure in 2012 of
$2.1/mmbtu (Lucas, 2013)
• Around 100 new carriers will be completed between 2013 and 2017, with
an average capacity of 164,000 cm (74,000 tons LNG).
• This stands for a 30% increase in international shipping capacity since
2012, or a compound average growth rate of 7% higher than the
expected LNG demand growth of 5–6% in the same period of time.

4 - LNG Shipping

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4 - LNG Shipping

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LNG Trading & Logistics

What is LNG & LNG Shipping?

• Shipping : LNG shipped from liquefaction facilities to import terminals or FSRUs

What is LNG & LNG Shipping?

What is the significance of Transportation Costs in LNG

What is the significance of Transportation Costs in LNG

What is the significance of Transportation Costs in LNG

What is the significance of Transportation Costs in LNG

What is the significance of Transportation Costs in LNG

What are LNG Shipping Supply Fundamentals?

What are LNG Shipping Supply

What are Containment Systems ?

What are Containment Systems ?

Photo of Spherical Moss Vessel

Photo of Membrane Vessel

What are the different capacities of the vessels ?

What are the different capacities of the vessels ?

What are the different capacities of the

What are the different capacities of the vessels?

What are the types of Tanker

An Overview of LNG Ships World Wide.

Current and ordered LNG Fleet.

An overview of LNG Ships world wide..

An overview of LNG Ships world wide..

An overview of LNG Ships world wide..

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