Recent trends in LNG

Andreja Ana Lopac

RECENT TRENDS IN TRANSPORTING OF LNG, LIQUEFIED NATURAL GAS

RECENT TRENDS IN TRANSPORTING OF LNG, LIQUEFIED

NATURAL GAS

Andreja Ana Lopac

Project Manager, Project LNG-Energy

INA-Industrija nafte, d.d., SD Naftaplin

Barčićeva 9, HR-10000 Zagreb, Croatia

[email protected]

ABSTRACT

Transportation of liquefied natural gas, cooled down to -162°C and transported by ships from liquefaction

terminals to receiving terminals, where it is again turned into gaseous form, is a modern orientation in global

planning of energy flows.

Since the first LNG transport in 1959 when the LNG carrier Methane Pioneer transported the first 5000

m3 of LNG from Louisiana to England, the technology of constructing the LNG carriers with implementation of

new materials and developing of new LNG reservoir systems as well as carrier engines, led to contemporary

LNG carriers that.

Traditionally, the largest number of carriers is tied up to a certain LNG project and owned by exporting or

importing companies. A number of independent companies, dedicated only to ship transport, find their interest in

contracting the construction of new carriers with specific characteristics in line with new conditions of world

LNG trade.

The article gives the overview of the world fleet of LNG carriers, as well as development trends in this

area of LNG industry.

Key words: LNG carriers, LNG shipyards, shippers, operators, conctracting

1 INTRODUCTION

The year 2009 will mark 50 years since the first transportation of LNG, when in 1959

the LNG carrier Methane Pioneer (a converted military freighter) transported the first 5 000

m3

of LNG from Louisiana (Lake Charles) to England (Canvey Island), taking 27 days to

cross the Atlantic [1]. Since then, following the growing role of natural gas as an energy

source, the LNG industry developed and its participation in transportation of natural gas grew,

becoming an important element in diversification of supply and in natural gas transport/transit

routes.

LNG shipping is an integral part of the LNG transportation chain, with natural gas

liquefaction as the first link and vaporization of LNG as the last one. Due to high price of

LNG carrier construction, a large part of the world LNG fleet is financed by specific LNG

projects and tied to them by long-term agreements, and owned by companies/consortiums of

LNG exporters or importers.

Changes in LNG trade, where previous regulation of the LNG market on the basis of the

long-term „take-or-pay“ agreements tied to a particular destination was supplemented and

sometimes totally replaced by new, more flexible agreements, often concluded for a particular

segment of the LNG chain, resulting in appearance of opportunities for development and

optimization of each of them. The segment of LNG transport is also developing

independently, without being tied to specific projects, with increasing number of independent

companies exclusively dedicated to LNG shipping, who find their interest in contracting of

new building ships with special characteristics tailored to the new conditions of the global

LNG trade.

The technology of constructing the LNG carriers with implementation of new materials

and developing of new LNG reservoir systems, as well as carrier engines, led to contemporary

Andreja Ana Lopac


LNG carriers that enable quicker transport of large volumes of LNG, from even larger

distances, under competitive prices

The paper will give an overview of the world fleet of LNG carriers and outline

development trends in that segment of LNG business.

2 WORLD FLEET OF LNG CARRIERS

According to the data of Argus Global LNG [2], the world fleet of LNG carriers includes 247

vessels with total transportation capacity of 31 466 669 m3. The same source quotes the data

from the LNG Vessel Orderbook about 125 new LNG carriers on order with total capacity of

21 960 300 m3 and delivery by the end of 2011.

In view of LNG transportation under cryogenic conditions, vessel structures are

strictly prescribed by international standards („Code for the Construction and Equipment of

Ships Carrying Liquefied Gases in Bulk“ and „International Gas Code-IGC, Chapter VII

SOLAS Convention”). The rules of these basic documents are continuously expanding,

always with a purpose to increase security, and systematically accepted in all classification

societies which incorporated them into their legislation. Security measures impose technical

solutions for the construction of ship tanks with materials resistant to extremely low

temperatures, prescribe the use of impermeable pipelines and control of atmosphere in areas

close to the cargo, primary and secondary insulation of storage space, definition of hazardous

areas where special electrical equipment is installed and elimination of all flammable sources

from areas where vaporized LNG and air could come into contact.

By type of LNG containment system we make a distinction between two main

transportation systems, i.e. two main types of LNG carriers, shown in figures 1 and 2:

LNG carriers with membrane system,

LNG carriers with self supporting system.

Figure 1: LNG carrier with membrane system [3]

Andreja Ana Lopac


Figure 2: LNG carrier with self supporting system – Moss spherical type [3]

Each of the systems developed its design of LNG tanks independently, and each has

its advantages, shown in Table 1.

Table 1: Main types of LNG carrier tank systems [1] Membrane system Self supporting system

Structural

differences in ship's

tanks

- Tanks integrated into the ship's

hull

- Better utilization of space

- Smaller top side – lower fuel

consumption

- Due to lower overall weight –

channel tolls are lower

- Excellent navigability under

difficult weather conditions due

to smaller top side

- Tanks do not constitute a part of

ship's hull

- Constructed at the same time as

the vessel structure – shorter

delivery period

- Design eliminates cargo rollover

problems, which impacts the tank

walls, with resulting absence of

limitation of cargo loading height

Types of ship tanks

Technigaz tanks – TGZ Mark I &

Mark III

Gaz Transport design (GT 96)

Combined system CS-1

(combination Mark III and GT

98)

Kvaerner Moss spherical tanks

IHISPB prismatic tanks

Lowering of costs though the economy of scale, which was enable by developing of

technologies that enable the installation of facilities with higher LNG production capacities on

the one side and higher regasification capacities on the other side of the LNG transportation

chain, are followed by world LNG carrier fleet, aimed at quicker transport, larger volumes of

LNG at lowest transportation costs. In line with that, the trends of vessel type percentage have

also changed, both in design and type of ship tanks as well as in total capacity of cargo space,

lowering transportation costs per unit of transported cargo.

With former percentage of self supporting spherical carriers in the world LNG fleet at

40 percent, their share in new build ships dropped to below 15 percent, in line with required

increase of capacities, more easily achieved with membrane type of vessels, whose percentage

from the current share of 57 percent will increase to almost 86 percent [4].

The capacity of cargo space increased from 27 500 m3 in the '60s of the last century to

present 154 500 m3, i.e. to the 210 000 m

3 capacity in three Q-Flex vessels that sail the Qatar-

Great Britain route or the capacity of 265 000 m3

(named Q-Max), as in newly contracted

vessels to be delivered in 2010.

Large size of new generation of LNG vessels whose capacities exceed 265 000 m3,

require new technologies and new solutions, both on vessels themselves and on receiving and

exporting terminals which are not designed for vessels of such size. According to LNG

Journal [5], only the receiving LNG terminals in Great Britain (South Hook, Isle of Grain)

Andreja Ana Lopac


and Korea (Inhencion and Pyeonf-Taek) can receive Q-Flex vessels today. In the USA two

terminals will be ready to receive Q-Max carriers in 2008, one in 2009; Mexico will have two

terminals in 2008; Canada one; In Europe, in addition to two terminals which are already

receiving Q-Flex carriers (South Hook, Isle of Grain), a modification of Zeerbrugge, Montoir,

Sagunto and Fos Cavaou terminals was also announced. Receiving LNG terminal in Croatia

will be capable to accept the largest Q-Max carriers.

LNG carriers hold the second place in the world by vessel price. In view of the fact that

chemical and physical state of the transported substrate – natural gas cooled down to -162°C

and cryogenic conditions for storage of LNG in the ship's tanks, in addition to the requirement

to use materials suitable for low temperatures, obligatory primary and secondary insulation,

system for monitoring of special cargo, and a whole series of pumps, compressors and other

specialized equipment used during cargo loading and unloading under cryogenic conditions,

make the construction of LNG carriers an extremely demanding and expensive job.

Only 13 shipyards in the world are licensed for construction of LNG carriers. Only two

remained in Europe, in France and in Spain. In the early '90s of the last century Japan took the

leading position and today has 5 shipyards for construction of LNG carriers. In the late '90s

Japan was joined by Korea, whose entrance on the LNG carrier shipbuilding market lowered

the prices from former 280 million $ (average for 130 -150 000 m3 capacity LNG carrier) to

below 170 million $ per vessel. The current prices are again at the level of about 220 million

$ for a 155 000 m3 capacity carrier.

After becoming an exporter of LNG in 2006, and following the example of Japan and

Korea, China established the Guangdong LNG Transportation Group for the purpose of

import of LNG from Australia, and ordered the construction of five LNG carriers in its

shipyard, joining the LNG construction market. Table 2 gives an overview of shipyards and

their capacities for construction of LNG carriers.

Table 2: Shipyards technologically equipped for construction of LNG carriers, [1]

Shipyard Delivery capacity

LNG carrier/year

Experience in construction of

different types of tanks

Europe

Chantiere de l'Atlantique (France)

Izar (Spain)

3

3

GT, TGZ, CS-1

GT

Japan

Kawasaki Heavy Industries

Mitshubishi Heavy Industries

Mitsui Engineering & Shipbuilding

Universal Shipbuilding

Imabari Shipbuilding

3

5

2

2

3

Moss

Moss and GT

Moss and GT

TGZ and CS-1

TGZ, GT and CS-1

South Korea

Daewoo Shipbuilding & Marine Eng.

Hanjin Heavy Industries & Construction

Hyundai Heavy Industries

STX Shipbuilding

15

2

17

16

2

GT

GT

Moss and TGZ

TGZ

GT and TGZ

China

Hudong-Zhonghua Shipbuilding Group

5

GT

The idea that Croatian shipyards might join the LNG carrier construction market and

engage their capacities by shipbuilding which generates high added value has often been

presented in the Croatian public media. In view of the exceptionally demanding construction

of LNG carriers and the accompanying requirement for highly developed specialized

technology unavailable in our shipyards, foreign equipment and foreign services that would

have to be imported, payment of patent rights and licenses in order to be able to start the

Andreja Ana Lopac


construction of any type of LNG carrier, as well as low productivity in our shipyards, it is

difficult to imagine that it would bring the expected profit, i.e. generate the expected added

value.

3 DISTINCTION: OWNER – OPERATOR - LNG CARRIER CHARTERER

There are three types of ownership of LNG carriers:

LNG carrier is directly owned by LNG exporter/seller, or indirectly through a

company/corporation established by the exporter and (partially or fully) owned

by LNG exporter/seller,

LNG carrier is directly owned by LNG importer/buyer, or indirectly through a

company/corporation established by the importer and (partially or fully) owned

by LNG importer/buyer,

LNG carrier is owned by a shipping company, completely independent of any

side of the LNG project, and leased to LNG importer or exporter on the basis

of a short-term or long-term charterparty agreement.

When negotiating LNG transport, we differentiate between owner of the vessel,

transport operator and charterer, where each of them, through different types of contracts, has

strictly regulated rights and obligations, as well as points where control over the vessel

begins, or ends. The owner of the vessel concludes a contract with transport operator, who can

be independent or owned and organized by vessel owner. Transport operator can be a provider

of transportation service, or can lease the vessel on the basis of a long-term or short-term

charterparty agreement.

Charterparty agreements are concluded in dependence on the agreed manner of LNG

trade, according to the SPA (Sale and Purchase Agreement) between the LNG seller and the

buyer, which is the basic document of any LNG project. SPA regulates relations in the whole

LNG project; from LNG production and quality to quantities, payment conditions, division of

risk in the LNG transportation chain, delivery schedule, „Force majeure“ clauses – unforeseen

situations such as war, earthquake, flood or similar events which are not caused by the partner

in the project. SPA defines the manner of trade, which can be agreed as FOB, CIF, DES,

whose selection in addition to conditions of trade also defines the obligation to organize

transport.

The arrangement of LNG transport by vessels is indicated in the SPA as the obligation

of optimum LNG transport, according to the agreed specification, in conformity with ACQ

(Annual Contract Quantity) agreement on annual quantities, while obligation for organization

of transport, responsibilities and control over transport are regulated by trade conditions

specified in the SPA [1]:

Under FOB (Free On Board) conditions of trade, in addition to other obligations

stipulated in the agreement, the buyer is obliged to provide transport from the point

of loading.

Under CIF (Cost Insurance and Freight) conditions of trade, in addition to other

obligations stipulated in the agreement, the seller of LNG is obliged to provide

transport to the point of unloading.

Under DES (Delivered Ex-Ship) conditions of trade, in addition to other obligations

stipulated in the agreement, as under CIF conditions of trade, the seller of LNG is

obliged to provide transport to the point of unloading.

Under each of these conditions of trade, with consequent obligation to contract

transport, the buyer or the seller contract the charter of LNG carrier on the basis of a short-

Andreja Ana Lopac


term or long-term charterparty agreement, with vessel owner, i.e. with transport operator or

shipper. Depending on whether it is a case of long-term, short-term or single voyage charter,

and depending on the obligations of seller and buyer regulated in the SPA agreement, the type

of charterparty agreement that fully satisfies the obligations undertaken in the agreement is

selected. The main and most frequently concluded charterparty agreements are:

Time Charterparty – Charterparty agreement under which the LNG carrier is

chartered for a defined period of time (from several months to several years). The

party that charters the vessel for the time of the charter has control and disposal of

the vessel, while the party that rents out the vessel (operator, shipper or owner) has

the obligation to maintain the vessel in accordance with international rules and

conventions, to provide competent and experienced crew, to maintain the vessel in

accordance with the highest standards, giving guarantees that the actual carrier

performances are at every moment identical to those specified in the agreement

(speed, consumption of propulsion fuel, percentage of boil-off/day, capacity of

loading/unloading pumps…), taking upon himself all operating costs with the

exception of those specified in the charterparty agreement as chargeable to the party

which charters the vessel. The charterer takes upon himself all voyage costs, from

vessel propulsion fuel costs, channel tolls, port dues to boil-off losses (quantity of

LNG vaporized during transport).

Bareboat (or Demise) Charterparty – Charterparty agreement where the vessel

owner or transport operator rent out an LNG carrier without any obligation for

vessel maintenance, provision of crew or other operative obligations. The

obligation of the charterer is to provide vessel crew, vessel maintenance, vessel

insurance, vessel registration and carry out all other operative obligations related to

technical functioning of the vessel, bear voyage costs and administrative costs. The

vessel is under full control of the charterer. At the end of Bareboat charterparty

agreement, the charterer is obliged to return the vessel in the floating/technical

condition as specified in the agreement, to the location specified in the agreement.

Trip-Time Charterparty – Short-term charterparty agreement, most often used for

one-off transport of LNG, based on daily payment of vessel charter, where the

vessel owner, transport operator or shipper who rents out the vessel assumes all

voyage costs with the exception of propulsion fuel and port dues that are charged to

the charterer.

Voyage Charterparty – Short-term agreement, for one or several voyages

(Consecutive-Voyage), based on payment per ton of loaded LNG, which also

covers all voyage costs from the point of loading to the point of unloading of LNG.

Contract of Affreightment (COA) – is a variation of Voyage Charterparty, where

the LNG fleet owner or operator sign with the charterer an agreement on transport

of specified quantity of LNG, at specified intervals, but without specifying the

vessel. The owner or operator may nominate any vessel from their fleet of vessels

available for transport at the time when necessity for transport of agreed quantity of

LNG arises, but providing the charterer agrees with the vessel selected by the

owner. As in Voyage Charterparty, payment is per ton of loaded LNG, and all

voyage costs from the point of loading to the point of unloading of LNG are

covered.

Andreja Ana Lopac


Figure 3: Scheme of agreements in transportation of LNG, [1]

4 LNG TRANSPORT COSTS

The cost side of the middle part of the LNG chain, transportation of LNG by vessels, is

formed on the basis of vessel costs, operative costs and voyage costs for LNG carriers at a

certain destination.

The price of LNG carriers (most frequent capacity was 125 000 – 155 000 m3) has

considerably fluctuated in the last fifteen years. At the beginning of the „90s it ranged from

260 to 280 million $. At the end of the „90s, after Korea joined the shipbuilding market by

construction of Exmar LNG carrier with capacity of 138 000 m3 for 145 mil $, the

construction prices of LNG carriers dropped to 150 - 170 million $. Due to the increase of

steel prices on the world market, insufficient capacities of shipyards capable of constructing

LNG carriers, higher labour costs and implementation of new technologies which allow faster

vessel speeds, lower consumption and lower boil off (which now ranges from 0,1 to 0,25

percent/daily), since 2005 the prices are again at the level of about 220 million $ for a 155

000 m3

capacity LNG carrier [6].

Operative costs include vessel insurance costs, maintenance, repairs and storage of

mandatory spare parts, lubricants, administrative costs and vessel crew costs. Table 3 presents

operative costs for 155 000 m3 capacity LNG carrier

.

Table 3: Operative costs (average) for 138 000 m3 capacity LNG carrier [2]

Vessel

insurance

Maintenance

and repair

Spare

parts and

lubricants

Administrative

costs

Vessel

crew

costs

TOTAL

$/day 5 200 760 1782 800 9 222 17 764

Voyage costs depend on vessel transportation route. They mostly depend on the distance

between the exporting and receiving terminal, which generates the consumption of propulsion

fuel (variable, depending on fuel price) and boil-off costs (from 0,1 to 0,25 percent of the total

cargo/daily). Voyage costs include port dues and channel toll.

Prices of LNG transport, on the basis of long-term charterparty agreements by carriers

of 150 000 m3 capacity, range from 55 000 to 60 000 $ per day, while transport on the basis of

short-term charterparty agreements ranges from 70 000 $/day upwards [1]. Transportation

Andreja Ana Lopac


expenses are added to the cost of long-term charterparty agreement, and the total transport

cost is obtained.

Table 4 shows total LNG transport costs [2] depending on the route and voyage

duration, according to the model which performs calculation on an annual basis, for vessel of

138 000m3.

capacity, travel speed 19 knots, consumption 160 t/day at travel speed and 3 t/day

during loading and unloading operations, with one day anticipated for LNG loading and two

days for unloading, and 15 days annually for maintenance purposes, boil-off 0,15 percent

during loading and 0,1 percent/day during navigation and 5 percent LNG reserved for

maintenance of bulks at cryogenic temperatures, with return rate on capital of 5,5 percent.

Table 4: Transportation costs for 138 0 00 m3 capacity LNG carrier (average, October 2007)

Tra

nsp

ort

ro

ute

Tri

p t

ime

-on

e w

ay

Fu

el

con

sum

pti

on

/ $

Cre

w /

$

Ves

sel

insu

ran

ce /

$

Ma

inte

na

nce

an

d r

ep

air

s /

$

Sp

are

pa

rts

an

d

lub

rica

nts

/ $

Ret

urn

on

ca

pit

al

/ $

To

tal

vo

yag

e co

sts

/ $

Bo

il o

ff

m3

Qatar -

Japan 14,0 2 277 533 129 115 72 261 10 602 24 955 726 003 3 240 469 12 679

Qatar –

Spain 11,2 1 823 471 105 791 59 207 8 687 20 447 580 803 2 598 407 12 094

Algeria -

Belgium 3,4 536 983 40 817 22 844 3 352 7 889 176 317 788 202 10461

Algeria -

France 1,1 178 585 21 658 12 121 1 778 4 186 57 046 275 374 9 980

Algeria –

Spain 0,8 131 837 19 159 10 723 1 573 3 703 41 489 208 483 9 917

Libya –

Spain 2,3 365 575 31 654 17 716 2 599 6 118 119 274 542 937 10 231

Nigeria –

France 8,8 1 378 442 85 799 48 019 7 045 16 583 456 346 1 992 233 11 591

Nigeria –

Spain 8,4 1 316 111 82 467 46 154 6 772 15 939 435 603 1 903 046 11 508

Algeria –

G. Britain 4,0 630 479 45 815 25 641 3 762 8 855 207 432 921 983 10 587

5 CONCLUSION

Activities in LNG industry have been recording growth in all segments of the LNG

chain, adjusting the required infrastructure to such growth from average 7,7 percent to 11,7

percent annual growth. In the last five years the LNG trade increased by 29 percent,

liquefaction capacities by 27 percent, and 12 newly contracted liquefaction terminals. The

LNG carrier fleet increased from the beginning of 2002 until the end of 2007 by 113 vessels.

The world fleet of LNG carriers today includes 247 vessels with total transportation capacity

of 31 466 669 m3, with 125 already contracted LNG vessels in the Orderbook, with total

capacity of 21 960 300 m3, and delivery by the end of 2011 [2].

The world LNG fleet follows the expected increase of LNG demand by placing new

orders, increasing the capacity of cargo space, and by more advanced technologies for

maintenance of LNG at cryogenic temperature, as well as other performances that enable

quicker transport of large volumes of LNG, from even larger distances under competitive

prices. The trends of vessel type percentage are also changing. While previously, percentage

of spherical LNG carriers accounted for 40 percent, their share in new build ships dropped to

below 15 %, in line with necessary increase of capacities which is easier with membrane type

Andreja Ana Lopac


of vessels, whose percentage from the current share of 57 percent will increase to almost 86

percent [7].

Although the economy of scale with increase of transportation capacities lowers the

costs per unit of transported LNG, the problem of compatibility of new, large LNG carriers

with numerous existing receiving and exporting terminals which were not designed to accept

such carriers, are also reviewed. Large size of the planned new generation of LNG vessels,

whose capacities exceed 265 000 m3, requires new technologies and new solutions, both on

receiving and exporting terminals and on vessels themselves, by implementing new materials,

optimizing storage space, introducing new types of propulsion engines.

While traditional LNG trade was regulated by firm, long-term agreements that were tied

to strictly defined producer and strictly defined consumer, firmly fixed quantities, routes and

delivery schedules, modern, current and future LNG trade offers not only geographical

diversification of suppliers, importers and LNG transport routes, but is accompanied by

flexible contracting on the basis of medium-term and short-term agreements that follow the

seasonal changes in consumption in certain regions, and possible urgent quantities of imports.

Changes in the LNG trade patterns are also accompanied by changes in LNG vessel

contracting patterns. Long-term agreements are on decline, „trip-time“ and „spot/single

voyage“ transportation agreements are rare but have a tendency to grow, while short-term (up

to two years) and medium-term agreements (two to five years) are the most frequent in the

newly concluded LNG transport deals. The cost side of LNG transport by vessels is formed

on the basis of vessel price, operative costs and voyage costs of LNG carriers in a certain

destination, depending on vessel capacity, route length, agreement type, etc.

Contracting of LNG transport has developed into a commercial discipline that relies

upon knowledge of Anglo-Saxon law, knowledge of LNG transport chain cost structure, and

the world market for LNG and its specific features.

The paper gives a survey of the world LNG vessel fleet and outlines development trends

of that segment of the LNG chain, with the aim to shed more light on some facts that will help

us understand the economics of the whole chain, from loading and transport to delivery of

liquefied natural gas.

REFERENCES

1. M. D. Tusiani, G. Shearer, LNG a Nontechnical Guide, PennWell Corporation, USA,

2007, pp.

2. Argus Global LNG, Volume III, Issue 12, December 2007, Table: LNG vessel fleet

development, pp.29

3. http://www.hansa-online.de

4. A. Flower, D. Ledesma, CWC School for Energy, Advanced LNG Course-Rome

2007, training course papers

5. LNG Journal, January 2008, Table: World LNG Carrier Fleet, pp.25-30

6. A. El-Manakhly, “The Suez Canal and LNG”, 6th Doha Conference on Natural Gas,

Doha, Qatar, October 29 – November 1, Qatar Petroleum, 2007

7. A. A.Lopac, I. Grozdanić, J. Križan, “Svjetski trendovi u LNG industriji”,

Međunarodni znanstveno-stručni skup o naftnom gospodarstvu, Zadar, Croatia,

October 2-5, Hrvatska udruga naftnih inženjera i geologa HUNIG, 2007

8. S. Kolundžić, A. A. Lopac, “Adria LNG – aktualni trenutak”, Međunarodni kongres:

Energija i okoliš 2006, Opatija, Croatia, October 25-27, Tehnički fakultet Sveučilišta

u Rijeci, 2006, Vol 1, pp.9-16

Documents

Recent trends in LNG