Asian slump darkens world's LNG trade, shipping

The 65,000-cu m LNG Lerici was built by Fincantieri and delivered in 1998 to SNAM to serve the Italian LNG terminal of La Spezia. The vessel derives its name from the village of Lerici in the Golfo di Spezia. (Photograph from Fincantien Shipyard, Genoa, and Ciba Specialty Chemicals, U.K.)

The world's LNG industry may have sailed into the doldrums last year, after setting some records in 1997.

Economic turbulence in Asia has blown considerable uncertainty over many of the world's LNG projects.

That's according to several major studies published in late 1998 that reviewed the world's LNG industry for 1997, the most recent year for which full data are available.

Looking at industry performance were the Institute of Gas Technology (IGT), Des Plaines, Ill.; the Society of International Gas Tanker & Terminals Operators Ltd. (Sittgo), London; and Clarkson Research Studies, London.

As recently as 1997, optimistic forecasts for natural-gas demand in Asia had fueled a flurry of plans for new liquefaction plants, vessel newbuildings, and import terminals.

Despite a robust 1997, the economic crisis that started early in that year and spread into 1998 and 1999 has made many of those plans problematic.

Clouds; Asian dominance

Growth in LNG trade since 1980, says IGT's "An Overview of the Global Baseload LNG Industry," has averaged nearly 8%/year, now accounting for 25% of all natural gas traded internationally, compared with only 5% in the mid-1970s.

In 1997, IGT calculates, world LNG trade rose 12.6% to a record 111 billion cu m (Fig. 1 [79,582 bytes]). By comparison, total world natural-gas consumption and pipeline imports remained more or less unchanged from 1996 at 2.3 trillion cu m and 520 billion cu m, respectively.

Until recently, several forecasts indicated that world gas use would increase more rapidly than other energy sources, surpassing coal by 2015 to become the second most widely used fuel (after petroleum). This growth would be driven mostly by power-generation projects, a pace of 8%/year through 2015 in Asia alone.

Such countries as China, India, and Thailand, lacking sufficient domestic resources to meet burgeoning domestic demand for natural gas, seemed likely to become important markets for natural gas supplied both by tanker and pipeline.

But the economic outlook for the entire region, Korea, Indonesia, and Thailand especially, is very clouded. The IGT study notes three major areas of impact:

• Currency devaluation. Major Asian currencies have been sharply devalued, some by as much as 50%. Because LNG contracts are denominated in U.S. dollars, such devaluations make LNG projects that much more expensive and likely therefore to be postponed or cancelled.
• Reduced economic growth. Forecasts for the once-robust Asian economies have turned sour, with those of the major countries-Thailand, Indonesia, Malaysia, Korea, and Japan-expected to contract short-term by between 3% and more than 13%.
• Lower credit ratings. The economy in the nation which imports the most LNG in the world-Japan-has not been providing the lift needed to show the remaining Asian nations how to reverse their economic tailspins.

The result is greater difficulty raising funds for needed projects which in themselves might otherwise boost an economy out of a spiral.

Nevertheless, Asia has been and continues to be the major recipient of LNG as well as the major supplier, along with the Middle East. IGT's study shows Asia's continued dominance of LNG imports and exports (Table 1 [100,860 bytes]).

In 1997, IGT's study shows, Japan, Korea, and Taiwan received shipments of 75% of the world's LNG trade (Table 1). Indeed, when combined, their LNG demand rose in 1997 by 23%, to 61.8 million metric tons/year (mty).

Japan, the world's largest LNG importer, held 58% of the total but its market grew by only 6.5% in 1997, indicating its maturity. Korean demand, by contrast, has been growing at 20%/year since 1986.

In 1998, a third train of the Qatargas project came on stream (OGJ, Aug. 24, 1998, p. 41). Of the four other projects planned (Table 2 [184,970 bytes]), three aim at Asia-Ras Laffan, Oman LNG, and the PT Badak expansion.

Almost all the rest was shipped to Europe, where markets grew nearly 19%, following little growth in 1996, says the IGT study. Italy resumed LNG imports in 1997 with the recommissioning of its terminal at Panigaglia (OGJ, Feb. 23, 1998, p. 62).

Although U.S. imports in 1997 nearly doubled for the second year in a row, it remains a relatively small niche market for LNG (OGJ, Jan. 25, 1999, p. 78).

On the exporting side, Asia and Australia accounted for two-thirds of all LNG production (Table 1). The world's largest producer by far remained Indonesia with 32% of total sales, though proportionally this was down from 35% in 1996.

Exports from Malaysia rose 22% in 1997 on the heels of a 29% increase in 1996, reflecting the commissioning of the Malaysia LNG Dua plant in 1996.

Algeria's exports continued to rise as the revamping of its plants neared completion. Qatar became the world's ninth exporting country at the beginning of 1997 and by the end of the decade will be exporting more than 12 million mty.

Oman, Trinidad, and Nigeria will soon join the exporting ranks.

Export, import facilities

As summarized in Table 3 [255,472 bytes], nine countries have liquefaction facilities: Abu Dhabi, Algeria, Australia, Brunei, Indonesia, Libya, Malaysia, Qatar, and the U.S. Together they have 59 trains with a production capacity of 97 million mty, equivalent to nearly 134 billion cu m of natural gas.

The liquefaction process licensed by Air Products & Chemicals Inc. (APCI) is used in all the trains except the GL4Z and GL1K in Algeria (the TEAL process licensed by Technip, which is no longer marketed); GL2K in Algeria (Pritchard Corp.'s Prico process); and the Kenai, Alas., plant (Phillips' Cascade process).

Of the five new plants under construction, four use the APCI process. The Atlantic LNG project in Trinidad and Tobago is installing Phillips' Optimized Cascade process.

APCI's design employs a propane precooled/mixed refrigerant process that it patented in 1973. It is a hybrid of the cascade and mixed-refrigerant processes. Propane is used to pre-cool the natural gas from 40° C. to -30° C. A mixed-refrigerant process is used to subcool the gas from -30° C. to -160° C.

The Phillips process is three refrigeration loops in series. This design can accommodate two compressor trains to feed gas into one refrigeration train, adding to the system's flexibility and reliability, according to Phillips.

Since inception of the baseload industry with the Camel plant (Algeria) in 1964, the size of individual trains has steadily increased from 60 MMcfd (0.4 million mty) to 300 MMcfd (2 million mty) in the 1980s, and 450 MMcfd (3 million mty) or even higher in the new projects built in the 1990s.

As of the end of 1998, says the IGT report, 36 receiving terminals were operating in eight countries: 22 in Japan, 3 in Spain, 3 in the U.S. (including Cove Point, as a peakshaving/storage facility), 2 in Korea, 2 in France, and 1 each in Italy, Belgium, Turkey, and Taiwan.

Several companies plan or are conducting expansions, including Tokyo Electric, Chinese Petroleum Corp., Korea Gas Corp., Distrigas, Enagas, and Hiroshima Gas.

The 10 largest terminals are in Asia. Both the largest and the smallest are in Japan, the largest by far being the Sodegaura terminal built by Tokyo Gas and Tokyo Electric in 1974, which has 35 storage tanks with a capacity of 2.7 million cu m of LNG. The smallest is the new terminal at Kagoshima with one 35,000-cu m storage tank.

All the newest terminals (Kagoshima, Shimizu, Fukuoka, Hatsukaichi, and Sendai) are relatively small, with storage capacity of 85,000 cu m or less. This reflects, says IGT's report, the entry of smaller Japanese gas utilities into the LNG business.

The big three Japanese utilities-Tokyo Gas Co. Ltd., Osaka Gas Co. Ltd., and Toho Gas Co. Ltd.- account for more than 75% of the country's gas sales. The remaining 25% is supplied by some 240 small companies not linked by a major transmission grid.

In the mid-1990s, IGT's study says, the so-called medium-sized companies (Hiroshima Gas, Sendai City Gas, Salbu Gas, Shizuoka Gas, and Hokkaido Gas) began converting from manufactured to natural gas and have built their own terminals to receive, store, and regasify imported LNG.

Four terminals were under construction at year-end 1998: two in Japan (Ohgishima and Chita Midorihama), one in Greece, and one in Puerto Rico. At least eight more are planned, proposed, or prospective, says IGT, including one in Korea, several in India, and two in Turkey.

Shipments; shipping

Shipping, the key link between export plants and import terminals, poses the largest question mark for LNG trade, according to the IGT study.

For 1997, the IGT counted 103 tankers in operation, up from 97 a year earlier: 14 in the 18-50,000 cu m class; 14 in the 50-100,000 cu m class; and 75 in the class of tankers with 120,000 cu m or greater capacities.

If projections for doubling of the world LNG trade by 2010 hold, as many as 18 more tankers will be needed, IGT says. This scenario calls into question whether sufficient vessels can be ready, given the necessary long lead times required for vessels and shore infrastructure.

(More recent newbuilding prospects are discussed presently.)

The IGT report also notes that only 13 shipyards in the world could build LNG tankers; 9 in Asia (Japan and Korea); the other 4 in Europe.

Vessel size could reach 200,000 cu m with current techniques, although there is a trend toward smaller vessels: Earlier this decade, Saibu Gas Co. Ltd., Japan's fourth largest utility, built a small receiving terminal at Fukuoka to receive up to 360,000 mty from Malaysia and ordered the 18,000-cu m Aman Bintulu for delivery.

Older tankers, at the same time, are sailing longer, as a result of excellent maintenance, with life expectancy extended to 40 years or longer from the initial 25 years. Still, the report warns, the number of available vessels is limited and will remain so, becoming even tighter when Trinidad and Nigerian projects start up.

LNG shipments in 1997 set another record, according to LNG Log 23, the 23rd installment from Sittgo that surveys LNG shipping volumes, vessels, and routes. Shipments consisted of 1,918 voyages of the world's LNG fleet.

Leading in number of shipments (379) was the loading terminal at Bethioua (Algeria), followed by Bontang (Indonesia), Bintulu (Malaysia), and Blan Lancang (Indonesia-Arun plant). By quantity, Bontang and Bintulu in early tied at approximately 33.1 million cu m each; Bethioua was not too far behind.

Blang Lancang was fourth with more than 24.6 million cu m.

Eight active European terminals received nearly 23% of the total LNG delivered in the world in 1997, says the Sittgo report.

In Asia, 20 terminals (18 in Japan and 1 each in Korea and Taiwan) received more than 75%. The only two active terminals in the U.S. received 2%.

LNG Log 23 reports nine new vessels entered the international LNG trade in 1997, among them were the first four spherical-tank Kvaerner ships to serve the Qatargas routes from Ras Laffan-Al Khor, Al Wajbah, Al Rayyhan, and Al Zubarah, all 135,000-cu m sister ships.

The Das Island-based fleet of National Gas Shipping Co. grew by two vessels: Commissioned were the 137,000-cu m Al Hamra and Umm Al Ashtan, both spherical-tank-equipped vessels from Kvaerner Masa.

SNAM took delivery of the first of two 65,000-cu m vessels with Technigaz cargo tanks. Originally named the SNAM Portovenere, the vessel was rechristened LNG Portovenere.

The last of five 130,000-cu m gas transport vessels for Malaysia's Petronas Marine Sendirian Berhad, the 18,928-cu m Puteri Firuz, went to Chantiers de l'Atlantique.

And a second mini-carrier, Aman Sendai, was received from NKK Corp. by Asia LNG Transport Sendirian Berhad for service between Bintulu and Sendai, Japan. It is equipped with three Technigaz membrane tanks.

In addition to moving in new vessels, says the Sittgo report, world LNG trade also moved over seven new routes, three of which resulted from the commissioning of the new Qatargas liquefaction plant at Ras Laffan.

From there, new routes extended to Barcelona and the Japanese terminals at Chita (Chubu Electric) and Kawagoe.

A new receiving terminal opened in 1997 at Shin Minato to serve the City of Sendai's municipal gas utility from Bintulu. And a new route to Japan connected Lumut (Brunei) with Higashi-Ohgishima in Tokyo Bay.

The other new routes were to the U.S.: LNG loaded at Whitnell Bay, Australia, was delivered to Everett, Mass., and Lake Charles.

Although noting that 1997 was another record year for LNG carriers, the Sittgo study says that of "immediate concern is the fiscal malaise which has struck at many parts of the Far East."

The impact upon LNG shipments, says the report from a perspective of mid-1998, may be seen in the "apparent cancellation of some cargoes and some concern over the financing of a number of existing and proposed construction contract for LNG carriers."

The study points out that the continued economic weakness and uncertainties in Asia have made for a conundrum: Currency fluctuations create some apparently remarkable bargains in shipbuilding in the Far East, while the same uncertainties upset some trade patterns by casting doubt over LNG-demand forecasts as well as the financing of several construction projects.

Nonetheless, several new vessels are likely to see service in 1999 and 2000: Two additional Qatar ships were due for delivery in 1998 along with the LNG Lerici and the Aman Niri.

And in 1999, shipments are to commence between Algeria and the Revithoussa terminal in Greece and Port Fortin, Trinidad, and Cabot LNG's Everett, Mass., terminal.

Newbuildings

The LNG carrier fleet by late 1998 stood at 108 vessels totaling 11.4 million cu m capacity, an increase since March 1998 of two vessels totaling 200,000 cu m, according to Clarkson Research Studies' Shipping Review & Outlook (Autumn 1998).

The world's LNG fleet, says the review, has seen steady growth in the 1990s with an increase of 31 vessels of 4.2 million cu m January 1990 to January 1998 (Fig. 2 [81,359 bytes]).

This trend will likely continue through next year when 22 vessels of 2.8 million cu m are to come into service by the end of 2000. It is unlikely that any vessels will be scrapped, says Clarkson's review.

The two ships delivered earlier in 1998 were the LNG Lerici, a 65,000-cu m unit for Agip, and the 135,000-cu m Broog for the Qatar Gas consortium.

The newbuilding orderbook in the second half 1998 stood at 22 vessels of slightly less than 2.8 million cu m. In capacity terms, this represented 24% of the existing fleet.

Further analysis by Clarkson revealed that three vessels of 289,158 cu m were expected by year-end, while 1999 has nine vessels of 1,226,554 cu m scheduled for delivery.

The year 2000 promises to be the most popular year, with 10 ships totaling 1,239,100 cu m due to be completed. Of the 22 vessels on order, 13 are earmarked for the Korea Gas project, but reports late last year continued to circulate that cast doubt on some of these contracts, says Clarkson's review.

The Asian economic turmoil caused some observers to question whether all 13 vessels will be built.

The Asian economic crisis has taken its toll on contracting, as well, says the review. No vessels were on order for 2001 or beyond. No new orders had been placed by second half 1998, and only two in the last quarter of 1997.

The economic slowdown in Asia has killed any increase in LNG demand, says the review, resulting in pending projects being put on hold. Malaysian state oil company Petronas had reportedly been talking to shipyards in Japan and Europe concerning a requirement for up to six LNG carriers. But such an order seemed unlikely, at least in the short term.

The building of LNG carriers is almost exclusively nonspeculative, says the review, which finds it difficult to see from where any new demand is likely to come. Although discussions regarding Indian imports had been continuing, it was anticipated that the requirement would be small in comparison to recent projects.

With this scenario, some shipyards that have until now relied heavily on LNG building to fill up berth space will have to look elsewhere.

Consistent with Clarkson's review earlier in 1998, LNG scrapping in the last half of the year was virtually nonexistent.

With the majority of vessels in the 25-30 year age group fully committed for 12 years at least, there was little prospect of demolition sales in the immediate future.

In the fleet of LNG vessels, 42 ships of 3,535,891 cu m are 20 years or older, 17 vessels totaling 796,223 cu m are 25 years or older, and 2 of 52,900 cu m are 30 years or older.

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