Natural Gas Is Losing Its Shine for Ship Operators – The Wall Street Journal.

By Costas Paris

WSJ

Nat­ural gas tankers in re­cent years pro­vided a seem­ingly sure­fire way for ship­ping investors and ves­sel op­er­a­tors to tap into chang­ing en­ergy mar­kets and the raft of U.S. ex­port projects aimed at meet­ing demand in Asia.

But the coro­n­avirus pan­demic is hit­ting the mar­ket for nat­ural gas hard, un­der­cut­ting hopes for a rich new vein for prof­its on the wa­ter. It is mak­ing the busi­ness of transport­ing liq­ue­fied nat­ural gas look more like other sec­tors that have been send­ing operators of ocean­go­ing cargo ships through wild peaks and val­leys.

Some gas projects are now be­ing put on hold on the back of record low prices and brim­ming stor­age fa­cil­i­ties, and some op­er­a­tors are push­ing back or­ders for the new ves­sels they had been count­ing on as big profit en­gines.

Mid­dle East en­ergy gi­ant Saudi Aramco and its ship­ping arm Bahri have put on hold their planned en­try this year into LNG ship­ping, push­ing back an or­der of a dozen gas car­ri­ers worth up to $2.5 bil­lion.

The post­pone­ment came af­ter San Diego-based Sem­pra En­ergy said in early May it would de­lay an in­vestment de­ci­sion on its Port Arthur, Texas, LNG ex­port project un­til 2021. The com­pany cited ad­verse mar­ket con­di-tions from the pan­demic lock­downs.

Un­der a 20-year deal signed last year, Aramco would buy a 25% stake in the Sem­pra fa­cility and move five mil­lion tons of LNG an­nu­ally.

At about $175 mil­lion each, ves­sels out­fit­ted to move LNG cost much more than other types of ships be­cause of the spe­cial equip­ment they need to haul the fuel. But top shipown­ers have said the mar­ket could be the ve­hi­cle for the most prof­itable new trade in ship­ping since the 1960s, when crude-oil tankers be­gan pow­er­ing global mar­itime fortunes.

The LNG busi­ness has long been a small piece of the global tanker mar­ket. But trade in nat­ural gas has been surg­ing as the world looks for cleaner sources of power to re­place oil and coal.

De­mand has grown sharply in China, while pro­duc­tion in the U.S. has soared as im­proved hy­draulic frac­tur­ing tech­nol­ogy has made drilling for both shale oil and gas more cost effective.

“Up un­til a year ago, it looked like if you are in ship­ping, you must have LNG ships,” said a Greek owner who op­er­ates a hand­ful of gas car­ri­ers and spoke on con­di­tion of anonymity. “But car­goes are now canceled, stor­age fa­cil­i­ties are full and de­mand de­pends on whether the virus will go away. We planned to or­der two more ships over the sum­mer, but now we’ll wait be­cause the mar­ket is quite un­cer­tain.”

The En­ergy In­for­ma-tion Ad­min­is­tra­tion said in a May 28 re­port that nat­ural gas de­liv­er­ies to U.S. fa­cil­i­ties pro­duc­ing LNG for ex­port av­er­aged 6.7 bil­lion cu­bic feet a day in May, the low­est level since Oc­to­ber last year.

“Lower LNG ex­ports are ex­pected to con­tinue through the sum­mer,” the EIA said, cit­ing re­ports that buy­ers have can­celed up to 20 ship-ments for June de­liv­eries and 45 for July.

Most of the car­goes can­celed came from Che­niere En­ergy Inc.’s Cor­pus Christi, Texas, and Sabine Pass, La., ex­port fa­cil­i­ties, ac­cording to two peo­ple involved in the mat­ter.

The clouds over the mar­ket go be­yond the im­pact of the pan­demic. Warm win­ters over the past two years and re­newed ten­sions between the U.S. and China have raised new ques-tions about the di­rec­tion of trade flows.

China will be­come the world’s big­gest LNG im­porter over the next four years, ac­cord­ing to the EIA, and the U.S. will be the big­gest ex­porter. But both economies are ex­pected to con­tract sharply this year, and Chi­na’s ap­petite for Amer­i­can nat­ural gas may wane.

Ja­son Feer, head of busi­ness in­tel­li­gence at en­ergy bro­ker Poten & Part­ners Inc., told an en­ergy we­bi­nar this week that ma­jor pro­ducers such as Qatar, Nigeria and Ma­laysia have seen no de­mand for car­goes of­fered on the spot mar­ket.

Qatar, now the world’s largest LNG ex­porter, kicked off the race for big LNG ves­sel fleets. It is look­ing to or­der 40 car­ri­ers, but its plans haven’t been com­pleted and the or­der may be de­layed or reduced.

Mr Freer said US cargoes may be cancelled until October.

For shipown­ers, that means the nat­ural gas mar­ket may start look-ing more like a roller coaster, and just as un­cer­tain as other shipping sec­tors.

“LNG ships looked such as a good bet be-cause pro­duc­tion costs in the U.S. are half than in Eu­rope and a third less than in the Mid­dle East,” the Greek owner said. “I got a June shipment can­celed from Texas and the spot mar­ket is very quiet. Things will even­tu­ally get bet­ter, but ex­pec­ta-tions that LNG trans­port will be the next gold mine have evaprated.”