The report, titled Shifting trade moves LNG shipping out of the doldrums, warns that while near-term prospects remain good, the danger is that tankers ordered in today’s rising market are likely to be delivered into a declining freight market with limited employment opportunities.

Wood Mackenzie Senior LNG Shipping Analyst Andrew Buckland says “45 new LNG ships have been ordered so far in 2011, compared with just five in 2010, and most of these have been ordered on a speculative basis. Ships ordered now which will be delivered around 2014–15 have no guarantee that new supply projects will choose to charter these vessels rather than order their own purpose-built ships.

“In the short to medium term we expect significant growth in Asian demand will be met by increased trade from the Middle East and Atlantic Basin, which will further tighten the shipping market. The Pacific Basin is expected to be tightest at 2014, requiring over 40 million tonnes per annum (MMt/a) of incremental LNG. However at this juncture, we forecast shorter haul Intra-Pacific trade to begin displacing long-haul Atlantic to Pacific LNG trade as new projects come online.”

According to Wood Mackenzie, the revival in new orders can be accounted for by a steep increase in LNG charter rates in 2011. Charter rates have more than trebled between the summer of 2010 and 2011 from below $A30,000–100,000 per day.

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Wood Mackenzie says that this is, in part, caused by a decline in new tanker deliveries coinciding with the start-up of new liquefaction capacity; stronger demand for LNG after the Fukushima earthquake in Japan; the redirection of some LNG tanker capacity to use as floating regasification terminals; and, the hoarding of capacity by some shipping capacity holders. Wood Mackenzie says that the key factor is the rise in sub-optimal shipping utilisation, driven by the demise of North American LNG imports and Qatari cargoes being withheld from Asia.

“Freight rates can rise considerably because Asian markets short on regional supply will pull more LNG from long-haul Atlantic suppliers while Qatar continues to push LNG into the Atlantic Basin,” says Mr Buckland.

“This is in part to protect its Asian pricing policy, but in part also to give employment to its fleet of large LNG vessels that can only call at a limited number of Asian terminals.

Since few new LNG ships are scheduled for delivery until late 2013, there will be no relief from new shipping capacity.”

However, Wood Mackenzie says that the shipping market will loosen and charter rate pressure will diminish when: 1. The recent tanker orders are delivered; and; 2. New LNG supply projects in the Pacific Basin come on-stream. Australian supply in particular is expected to displace the need for long-haul Atlantic supply.

Also, Wood Mackenzie says it expects increased Qatari LNG supply toward Asian markets as more Pacific buyers sign long-term contracts and sufficient time is allocated for terminals to upgrade to accept larger Qatari vessels.

“Freight rates are expected to continue rising and could go considerably higher in the near term. However, an expected decline in long-haul LNG trades and the possible preference for purpose-built vessels by some new LNG projects, implies that if the recent wave of speculative LNG ship orders were to continue they would risk uncertain employment upon delivery,” concludes Mr Buckland.