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China’s buying power in commodity markets is well known. The country consumes much of the world’s copper, cotton and corn, to take just a few examples.

Soon we might add natural gas to the list. Long-held concerns about energy security have made China dependent upon its huge reserves of cheap coal, but a long-term shift away from this highly polluting energy source towards natural gas has begun.

Although coal consumption has bounced back to a certain extent this year, it is not clear whether that can last, mainly because of the impact on the environment and public health: a recent academic study revealed that for those living in the more coal dependent north air pollution shortens their lives by three years compared with southern regions.

While it plans to bring in more gas through pipelines, China in the short term has chosen to increase its seaborne imports of liquified natural gas.

LNG imports jumped 48 per cent this year to the end of October. That follows a 25 per cent rise the year before.

Transporting this fuel requires specialised tankers — and from a glut several years ago, there are now not enough of them. Between 2012 and 2014 the number of tanker orders placed more than doubled to 66. This year the number dropped to just eight. The ships take about 30 months to build.

Spot daily rental rates have thus risen. Since April last year, LNG tanker rates have about doubled, though they are still historically low. These prices could double again before touching the highs of five years ago.

Not only have China’s imports picked up but the US has also begun to export its cheap natural gas. A price difference of about $6 per million British Thermal Units between US and Asian trading hubs encourages long-distance haulage.

Listed LNG tanker specialists have long waited for this day. Companies such as GasLog and Golar LNG have operating companies as well as high-yielding master limited partnerships listed in the US. Dynagas also has an MLP listed there. Another, Norway’s Flex LNG, awaits delivery of its vessels.

While there is no shortage of LNG supply to come, that gas will require more vessels. LNG tanker operators are in a sweet spot of limited supply and growing Chinese demand.


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