(Commonwealth_ Global demand for liquefied natural gas (LNG) has reached new heights, driven by the increasing need for a reliable energy transition fuel. Though it is unlikely that the record number of orders seen in 2022 will be repeated, the LNG market has entered a stable, growth-oriented phase. In 2023, 133 LNG carriers were ordered, and over 60 orders have been placed so far in 2024, according to Martin Cartwright, Global Business Director for Gas Carriers & FSRUs at classification society DNV. This marks a continued investment in LNG infrastructure and transportation, reflecting strong and sustained demand.
The current trend in LNG vessel orders is primarily a result of the economics surrounding liquefaction development. Recent major production and liquefaction projects have typically secured long-term offtake agreements before final investment decisions, resulting in greater certainty about transport requirements. Consequently, new-build orders are tied to secure production forecasts, and fleet expansion is designed to match these needs.
A significant portion of the new LNG carriers ordered in 2023 and 2024 will be used to transport LNG from Qatar’s North Field project to China, which remains the primary customer for this supply. Martin Cartwright explains that, given Europe’s continued dependence on the United States to replace Russian gas imports, newbuild activity is also linked to upcoming projects like Golden Pass and Calcasieu Pass 2. With Europe adapting its energy sources in response to geopolitical shifts, LNG imports from the U.S. have been essential for ensuring energy security.
Cartwright has provided an in-depth overview of LNG market trends, including supply and demand dynamics, and how these factors influence LNG carrier orders. He highlighted those significant increases in LNG production and liquefaction capacity have occurred in key regions, such as the United States and Qatar, making the market well-supplied for the foreseeable future. Global LNG supply is expected to grow by approximately 35% by 2027, fueled by increased production in these regions.
Gas is widely considered a bridging fuel for the transition to renewable energy, which has significantly increased LNG demand. It offers a versatile solution for transporting energy to regions that are not connected by pipelines. In Europe, the ongoing Ukraine conflict has further increased demand for LNG, as countries realigned their energy supplies away from Russian sources. As a result, European gas storage volumes have stabilized, providing a more settled market outlook for 2024.
Regarding the impact of energy efficiency on LNG shipping costs, Cartwright noted that there are three main types of LNG vessel propulsion: older steam turbine vessels, dual-fuel/tri-fuel diesel-electric vessels, and modern two-stroke engines. The day rates for chartering these vessels vary, depending not only on their cargo capacity but also on their energy efficiency. This differentiation in rates points to the evolving importance of fuel efficiency in shipping costs as the market moves towards sustainability.
Despite the modern advances in LNG vessel efficiency, there are still additional ways to reduce emissions that need to be explored. As Cartwright explained, many emission reduction initiatives were largely put aside during the boom of 2022, given the limited availability of yard space and increased costs. However, the more stable newbuild environment in recent times provides an opportunity for greater innovation in vessel design.
The next generation of LNG vessels could be equipped with advanced technologies, such as minimized methane slip, fuel cells, and onboard carbon capture. Furthermore, as global supplies of bio-LNG expand, vessel owners are expected to adopt this as a drop-in fuel, contributing to reduced emissions. Research is already underway into the feasibility of using alternative fuels like hydrogen as a drop-in fuel for the current LNG fleet, though challenges related to supply and costs remain substantial.