Greek Shipowners Splash the Cash on Liquefied-Natural-Gas Carriers

• 20 Dec 2014

LONDON—Greek shipowners, closely followed in the shipping industry for their investment choices, have splashed a record $1.8 billion this year to buy 11 new LNG carriers. The owners are betting that falling energy prices will spur demand for such vessels as European countries move to became less dependent on Russian gas pipelines. The U.S. is also expected to start exporting liquefied natural gas in substantial volumes in 2018. At around $200 million apiece, LNG carriers cost at least three times as much as other types of vessels of similar size. But while the market for ships such as container vessels, tankers and dry-bulk carriers is marred by overcapacity reaching up to 25% above demand, leading to unsustainable freight rates, LNG carriers are usually linked to lucrative contracts that stretch to more than 10 years, racking in substantial earnings for their owners. The Greeks are the world’s biggest shipowners, controlling 12% of all ships in the water, and rank second behind Japan with 12% of LNG carriers, according to shipping-data provider VesselsValue.com. They were among the first to move into the LNG market over the past decade, and the combination of the global quest for cleaner energy sources along with natural disasters and political crises has conspired to their benefit. “The first big boom in demand came with the 2011 Japanese tsunami, which knocked out a huge number of power stations, and demand for LNG in Japan went through the roof,” said James Allan, a gas ship broker at London-based Galbraith. “Up until mid-2012, daily charter rates hit $140,000, and with a break-even point of $40,000 to $50,000, it was party time for owners.” Chartering prices now average $60,000 to $70,000, still bringing in healthy returns compared with other sea carriers. In container vessels, for example, freight rates to ship a container from Asia to Europe, the world’s busiest trade route, this year have averaged about half the $1,500 break-even point. “Supply and demand for LNG carriers is close to equilibrium, although there is still surplus tonnage in the water,” Mr. Allan said. “With LNG prices gradually falling—LNG is mostly indexed to oil prices—demand for shipped gas could increase, with the Europeans looking to be less dependent on Russian pipelines, China looking for cleaner energy sources and U.S. exporters coming on line over the next few years.” Lithuania, which until recently was fully dependent on Russian gas supplies, got its first LNG cargo in October. Shipped from Norway, the cargo was discharged at a floating storage facility called Independence at Klaipeda port. The facility could enable Lithuania to end its imports of Russian piped gas by next year, people involved in the trade said. “If the politics between Europe and Russia stay tense over Ukraine, more countries will invest in alternative LNG supplies, and this will help first movers with LNG ships, like the Greeks,” said Harry Vafias, head of Stealth Maritime Corp., one of the largest Greek shipping operators, which is looking to invest in LNG vessels. New LNG supplies will start in 2018, with four major U.S. LNG exporters coming on line, and most ship orders aim to cater to the new supply. “The availability of new ships is being dominated by the fact that the majority of the U.S. LNG export projects—Cameron LNG, Freeport LNG, Corpus Christi LNG, Sabine Pass T3&5—are due online between 2018 and 2019, with vessels dedicated for the projects delivering during this period or earlier,“ said Alina Novikova, an LNG analyst at London’s Braemar ACM Shipbroking. “Almost all the U.S. export-project equity holders and off-takers are building the maximum of vessels in order to ensure freight.” Ms. Navikova said that the three big Korean shipyards building the ships only have two remaining slots for delivery in 2018, and she expects prices for future orders to rise by around $20 million per vessel, fueled by the high demand. Scheduled deliveries from the Korea yards over 2018 and 2019 will be around 30 vessels with companies like BP, Japan’s Mitsui, Malaysia’s Petronas and independent Greek owners being among the main takers. “With shipping going through one of its longest down cycles since the collapse of Lehman Brothers [in 2008], there are not enough takers out there that will provide long-term charters,” said Ted Petropoulos, managing director of Athens-based shipping-research firm Petrofin. “With LNG ships, the situation is better: The owners have achieved long-term contracts which provides a steady cash flow that can be used in an [initial public offering], or provide investment returns and dividend income, which right now are pretty elusive in the shipping industry.” Source: wsj.com