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Investing in liquefied natural gas shipping: A key overview

Part 5
Investing in liquefied natural gas shipping: A key overview (Part 5 of 12)

Liquefaction capacity is key to liquefied natural gas carriers

Liquefaction capacity

On the supply side, liquefaction capacity is a key driver of the global LNG (liquefied natural gas) trade and demand for the LNG carriers that companies such as Golar LNG Partners LP (GMLP), Golar LNG Ltd. (GLNG), GasLog Ltd. (GLOG), Teekay LNG Partners LP (TGP), and Dynagas LNG Partners LP (DLNG) operate. Without enough liquefaction capacity, natural gas can’t be turned into LNG or transported by LNG carriers.

LNG Capacity AdditionsEnlarge Graph

Besides, liquefaction makes up one of the largest components of the entire LNG value chain, costing billions of dollars to construct. For this reason, project investors have historically locked in long-term contracts with buyers based on pricing formulas that are linked to oil or Japan custom cleared crude prices (which we’ll discuss in the next part of this series). This means that for all liquefaction capacity that comes online, there will be more demand for LNG carriers.

As the chart above shows, Australia, the United States, and Russia are key countries that will lead world LNG trade growth over the next few years: Australia from 2014 but mostly from 2015, the United States primarily from 2016, and Russia thereafter. Other industry sources indicate that new capacity additions in countries such as Nigeria, Trinidad, Egypt, and Canada have been proposed, while Malaysia and Algeria are expected to support LNG trade growth marginally.

Whether more proposals will get approval and more liquefaction capacity will come online will depend on the economic feasibility of the liquefaction plants, which is subject to exporters’ domestic natural gas production, consumption and price, liquefaction cost, LNG demand, growth in natural gas reserves, and government policies.

So why are Australia and the United States ramping up their liquefaction capacity? Find out in the next part of this series.

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