Cold, Cold, Cold - A New, More Competitive Era for LNG Shipping

Growth in LNG supply and demand, the ongoing restructuring of the LNG sector and other factors are giving new significance to the nearly 500 specialized, oceangoing vessels that transport the supercooled, liquefied natural gas around the world. It used to be that the vast majority of LNG was delivered in milk run-like fashion under long-term contracts between suppliers and buyers, but that’s no longer the case. Now, the LNG market is much less structured and more fluid, with spot-market sales becoming more common and with the captains of some LNG-laden vessels not sure where they will end up as they head out of port. Today we describe the ins and outs of the shipping sector that moves hundreds of millions of metric tons of LNG annually.

Five years ago, in Export Boom or Import Echo — one of RBN’s first blogs about the potential for large-scale U.S. exports of liquefied natural gas (LNG) — we explained that the long-distance delivery of natural gas by ship is made possible and economic by liquefaction. Liquefaction is the process of supercooling natural gas into a liquid state, thereby reducing every 600 cubic feet of gas into one cubic foot of LNG. LNG is transported by special, purpose-built tankers with insulated cryogenic tanks that keep the liquid at about minus 260 degrees Fahrenheit, or about minus 160 degrees Centigrade. Cold, cold, cold indeed.

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No major infrastructure in the natural gas business comes cheap — major gas pipelines can cost hundreds of millions or even billions of dollars — but the LNG sector is particularly capital intensive. Liquefaction trains, the plants that supercool natural gas into LNG, typically cost several billion dollars each. Then there are LNG loading docks, LNG unloading docks and regasification facilities (which warm the product to return it to a gaseous state) and, of course, those specialized vessels that move LNG from liquefaction train to regasification plant. A good-sized LNG tanker (capacity 160,000 cubic meters, or about 5.6 million cubic feet of liquid — the equivalent of about 3.3 billion cubic feet of natural gas) can cost upwards of $150 million.

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