Analyst sees dark clouds over LNG market after 2020

LNG shipping companies are headed for a strong 2020 before a wave of newbuilds will put a damper on the market for some years. After this, the rates could increase again, projects shipping analyst.

Photo: Issei Kato/Reuters/Ritzau Scanpix

The LNG shipping companies can look forward to another strong year in which earnings could potentially peak. But already in 2021 this momentum could turn around and push earnings down for some years, projects shipping analyst Joakim Hannisdahl of firm Cleaves Securities.

In a new analysis, he offers his projections for how the LNG shipping companies will perform in the coming years.

"But, after one strong last year for LNG carriers, we see a significant weakness in 2021-23E from an influx of newbuildings vs. limited new liquefaction capacity coming online," writes Hannisdahl.

The prospect of a few weak years will, says Hannisdahl, mean that shipping companies' appetite for newbuilds will go down. And the shipping companies will thus lay the foundation for "a massive upsurge in fleet utilization" from 2024 to 2025.

"The long-term trend towards cleaner hydrocarbons should nevertheless be highly favorable for ship owners during the 2020s," he writes.

139 LNG newbuilds headed for the market

Earlier this week, ShippingWatch reported that 139 LNG newbuilds are set for delivery ahead of 2023, which corresponds to close to 20 percent of the current fleet. This year alone, 53 ships will hit the water, according to numbers gathered for ShippingWatch by ship database Vessels Value.

The number came as a surprise to Flex LNG's CEO.

"As shipowners we are in general always worried about the orderbook as this is the typical killer of freight rates," said Øystein Kalleklev, CEO of shipping company Flex LNG, which has six LNG vessels in its fleet and more set for delivery.

"I must say we have been a bit surprised by the level of orders being placed in 2019 as we placed none," he wrote to ShippingWatch.

Greek shipowners in particular have been ordering new gas ships, and they account for around 40 percent of the order book ahead of 2023.

Several of the many LNG ships which are about to hit the water were ordered in 2019 and are being built in South Korea.

English Edit: Daniel Logan Berg-Munch

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