AUSTIN, Texas ─ Keith Bainbridge, managing director of CS LNG, says he founded the company on the idea that a particular resource is in short supply in LNG markets these days: common sense. Thus the “CS.” And he served up some common sense at the recent CWC Thirteenth World LNG Series Americas Summit.

“It’s not rocket science,” he said, “and that’s why I do it.”

Shipping is often overlooked when everyone is chasing the El Dorado of Asian buyers; yet, it’s important, he said.

“Shipping is the most important and the most exciting part of the LNG chain.”

Rates

He began by highlighting the drop in spot charter rates paid to LNG shippers since the post-Fukushima boom, declining from more than $160,000 per day to less than $50,000 per day paid today. Later, he noted that ship owners often need about $50,000 per day to make ends meet.

“These guys don’t get rich very quickly, so when they do get their chance to do more than $50,000 per day let them have their three weeks of fun. Otherwise, they’re in pain.”

However, long-term rates look to be relatively stable.

“The long-term business still dominates the entire industry, and the same is true when it comes to shipping.”

He predicted that over the next five to ten years, 20-year contract rates would probably be about $80,000 per day to $85,000 per day.

The Fleet

Bainbridge reported that the current size of the LNG carrier fleet is 431 ships: 300 membrane, 113 Moss, two self-supporting prismatic shape International Maritime Organization type-B (SPB), 11 semi-pressurized and five fully pressurized carriers. Currently 154 more ships are on order. That amount includes 116 membrane, 20 Moss, four SPB and 14 semi-pressurized.

Of those on order, four companies control 83% of the construction. Hyundai Heavy Industries Co. Ltd. will be building 27, Samsung Heavy Industries Co. Ltd. will build 28, Daewoo Shipbuilding and Marine Engineering Co. Ltd. will build 52 and Hudong-Zhonghua Shipbuilding (Group) Co. Ltd. will round out the major builders with 13. Other builders combine for the rest of the ships.

So far, a majority of those ships on order look to enter long-term trade, according to a chart he presented. Additionally, the greatest number of orders will enter service for U.S. exports, at more than 45. Still a great number, about 40, have not been assigned to a project. Australasian service will ensconce over 25 ships, and Russia, China and Africa have claimed under 15 ships apiece.

Regarding technology, Bainbridge expects to continue to see a shift from four-stroke engines to two-stroke engines because of their greater efficiency.

“That [four-stroke engines] was the flavor of the month until we went to two-stroke engines,” he said.

Something else Bainbridge noted was the difference between vessels ordered and vessels required for North American projects. For Cove Point LNG in Maryland, only four of 11 ships have been ordered so far. Those with offtake interests in Sabine Pass LNG in Louisiana have ordered 31 of the 45 ships it will need, according to his estimate. Fellow Louisianan export terminal Cameron LNG, similarly, has orders for eight of 24 necessary ships. There have been only 10 orders for Texan project Freeport LNG, when it will need 30. And Corpus Christi LNG, although it will require 22, has secured none. Those are the five U.S. projects that have been approved by the U.S. Federal Energy Regulatory Commission and have secured authorization from the U.S. Department of Energy to export to countries that do not have free trade agreements with the U.S. All are expected to begin adding to world LNG trade before 2020.

Bainbridge thinks part of this reservation was because of the uncertainty with potential LNG destinations. Shipping requirements would change if different end markets became more attractive.

“An LNG ship on that route [from the Gulf of Mexico to Asia] will carry six cargos per year,” he said, noting the average distance was over 10,000 miles. “That’s not a very efficient use of shipping. But if that market disappears, your rescue market is 3,000 miles away, so very quickly you end up with a lot of excess shipping, and that becomes an issue. And not one of these projects has secured sufficient shipping to allow them to move forward.”

Bainbridge said there were currently 46 ships idling in the water right now, which is helping to keep spot charter rates low. He estimated that the balance of ships available would remain positive until 2019. With the number of projects coming into production toward the end of this decade─unless there are significant new orders of ships­─the balance could turn negative. The market might be undersupplied by 42 ships in 2019 and 74 ships in 2020, assuming current conditions remain stable.

In his final comments, Bainbridge thought yard capacity would not be a constraint in the next 24 months as orders continue to be placed.