The Impact of US Shale Gas Exploration on the global LNG tanker market
The triggers for this study have been several articles prophesying a shale gas revolution in the LNG tanker business. Following that, the author seeks to assess the real prospects that can be drawn from US shale gas exploration and whether their impact is long- or short-lived. The LNG tanker market is a market highly specialized and sophisticated with some of the most complex and expensive vessels on its hands. As is the case with most transport modes, also LNG shipping is derived from the demand and supply of its underlying commodity: natural gas. Natural gas is one of the major energy sources and looking at increasing crude oil prices and emission control regulations in both the US and Europe, it might become of even greater importance. Further LNG has over the past years seen a shift from a regional market with individual and micro forces behind valuation to a more globally traded commodity with new pricing mechanisms. The past years have seen a boom in the shipping of liquefied natural gas and the exploration of US shale gas has further fostered prospects. The aim of this paper is to assess the impacts of shale gas production in the US on the global LNG tanker market; major indicators used are changes in demand and supply volumes for liquefied natural gas around the globe as well as newbuild orders and freight rates in the tanker market. Introduction
“Natural gas is the third largest source of energy consumed globally, after oil and coal” (UNCTAD, 2012) and its clean-burning characteristics make it convenient for power generation. In many cases the geography of trade makes it essential for natural gas to be carried to its destination by ship, for which it has to be liquefied to reduce its specific volume, as opposed to the use of pipelines over shorter distances. However, despite advanced technology it is still very “expensive and inflexible” (Stopford, 2009) to process gas into LNG. Only one third of natural gas traded is actually transported in vessels, whilst the remainder still flows through pipelines. In recent years, LNG markets experienced a major boom with shipments growing by more than 10% in 2011, triggered by increased exports and imports by Qatar and Japan, China, UK, respectively (UNCTAD, 2012). Japan was by far the largest importer, receiving volumes accounting for more than the whole capacity produced by the world’s largest producer Qatar, around 77MT (UNCTAD, 2012). Overall Asia became the biggest player on the demand side, importing more than 60% of global LNG traded. Main Body
Over the past decade, the US, which is the largest consumer of natural gas, has been seen to “gradually reduce its dependency on foreign energy supplies” (UNCTAD, 2012). The production of shale gas played an important part in this process and by now the nation is virtually self-supplied (Figure below IGU, 2010).
Together with production maximized in Qatar, but on the other hand consistent low economic growth in Europe, the initial effect of extensive shale gas exploration in the US was very bad, as it created a trade glut. Here, the earthquake and following nuclear shut down in Japan is seen as a game changer for LNG markets, because the nation had to close its “power gap” with natural gas (IGU, 2011). Nevertheless, growing imports of LNG by namely China, India and the UK are said to have accounted for much more than the void left by declining US imports (Petronas, 2011).
Demand and Supply
There are two major pricing methods in the LNG markets (IGU, 2012): The Hub and Brand System – where prices are made at liquid hubs, e.g. the Henry Hub benchmark in Louisiana, USA, which includes both spot and future valuations and represents a major trading point for intercontinental exchange. As implied by the word “spot” values greatly depend on the forces of supply and demand of LNG, which may be an indicator why...