Supply and demand are still tight, and the new ship market is booming

LNG shipping market outlook: In 2023, LNG shipping supply and demand are tight, and freight rates are expected to maintain a high level

As a transitional fossil energy in the context of global energy transition, the consumption of natural gas has steadily increased. Natural gas is more environmentally friendly than other fossil energy sources, its carbon emission intensity is 25% lower than oil, 40% lower than coal, while free of dust, sulfides and nitrogen oxides, as a transitional fossil energy in the context of global carbon neutrality. Its share of global primary energy consumption has risen from 14.6% in 1965 to 24.7% in 2020. According to the BP Statistical Review of World Energy, global gas consumption has steadily increased over the past decade, from 3.23 trillion cubic meters in 2011 to 4.04 trillion cubic meters in 2021, with a CAGR of 2.3% in 2011-2021. In 2021, North America has the largest natural gas consumption, accounting for 25.6% of the global total consumption, while the Asia-Pacific region, the Commonwealth of Independent countries, the Middle East and Europe account for 22.7%, 15.1%, 14.3% and 14.1% of the global total consumption, respectively.

The conflict between Russia and Ukraine and the European energy crisis have led to a sharp increase in the demand for European natural gas maritime trade, which has led to a surge in freight rates. The European energy crisis caused by the conflict between Russia and Ukraine has fermented globally, forcing Europe to shift more LNG demand to the United States, according to EIA data, in 2022, the United States will ship LNG to the European Union accounted for nearly 50% of Europe's total LNG imports. The EU's share of LNG imports from Russia fell to 14% from 45% in 2021. Amid fears that Russia's export cuts would trigger an energy crisis in the winter, Europe launched a new gas replenishment cycle in 2022, with rapidly growing demand for LNG trading by sea straining capacity and pushing up freight rates. In addition, soaring demand and tight shipping capacity have led to more long-term charters, limiting the supply of ships to the spot market and further driving up freight rates. According to Clarksons' forecast, LNG seaborne shipments will grow from 380 million tons in 2021 to 630 million tons in 2030, and LNG seaborne shipments will increase by 65% in 10 years.

New orders reached a record high in 2022, and new capacity remained low in 2023. In 2022, the Russia-Ukraine conflict and the European energy crisis have led to a surge in LNG shipping demand, and LNG shipping has usher in a super cycle, with continued tight capacity and rising freight rates making shipowners willing to place orders for new ships. In 2022, shipyard LNG carriers' orders in hand and new orders reached a record high, but LNG carriers have a long construction cycle, usually 30-50 months, so we judge that new orders in 2021-2022 will not be delivered in large numbers in the next two years. 2025-2026 will be the peak period for new ship delivery; Given the low order book for new ships in 2019-2020, we do not see a significant increase in new capacity in 2023.

More floating tanks are expected to return to the spot capacity market, and some old small LNG carriers will accelerate retirement. The decline in the spot price of natural gas since August 2022 has led to a "futures premium" structure in the natural gas futures market, resulting in a significant increase in floating storage demand, resulting in a large number of ships disappearing from the freight market and an increase in idle capacity. It is expected that as the current price tends to balance, more idle capacity will be put into the tight spot capacity market. The soaring freight rate in 2022 has led to the dismantling volume of LNG carriers at a historic low, and the trend of large-scale LNG carriers in recent years is obvious. It is expected that with the correction of freight rates, the landing of EEXI and CII environmental protection conventions, some old small LNG carriers will accelerate their retirement.

In 2023, the global LNG shipping supply and demand relationship is still tight, and the freight rate is expected to maintain a high level. The surge in demand for LNG seaborne trade caused by the Russia-Ukraine conflict and the European energy crisis in 2022 and the tight capacity of the spot market contributed to this LNG seaborne super cycle. Looking forward to 2023, it is expected that the global energy transition combined with the Russia-Ukraine conflict resulting in the reconstruction of global LNG trade routes will boost LNG shipping into an incremental era. In order to replace Russian energy imports, Europe will shift more demand to the United States and the Middle East in the future, which will significantly increase the demand for LNG shipping and intensify the global competition for LNG. According to the International Energy Agency (IEA), Europe could face a shortfall of up to 30 billion cubic meters of gas in the summer of 2023 if Russian gas supplies are completely shut down and Asian customers enter the race for LNG. In December 2022, Japan, one of the world's largest LNG importers, entered into medium - and long-term LNG supply agreements with producers in the United States and Oman in order to secure future fuel supplies and avoid future energy shortages, which will lead to more long-term charter contracts, thereby limiting the supply of ships to the LNG spot market. Further aggravate the LNG spot market capacity strain. Overall, it is expected that the growth of LNG capacity in 2023 will still be unable to meet the demand for spot market capacity, and the relationship between supply and demand will remain difficult to balance.