The LNG shipping sector is likely to face consolidation and asset sales in the coming years as plunging freight rates and lean demand threatens the industry’s revenues, according to Reuters news agency.

LNG shipping sector braces for downturn

Singapore

SINGAPORE, December 21, 2015 – The LNG shipping sector is likely to face consolidation and asset sales in the coming years as plunging freight rates and lean demand threatens the industry’s revenues, according to Reuters news agency.

LNG transportation is facing its worst downturn in 30 years, with freight rates halved since 2014 as demand for the commodity continues to drop in key Asian markets such as China. Meanwhile, the global tanker fleet will grow 10% between 2015 and 2017 as ship orders are completed.

Charter rates for a 160,000-cubic-metre (5.65-mcf) carrier are now USD 32,000 per day, down from USD 72,000 in 2014. The breakeven price is USD 60,000-80,000. Analysts have told Reuters that some shipping companies will have to merge or sell assets to survive the downturn. LNG demand has fallen despite low prices, with Japan’s October LNG imports dropping 13% compared to the same period in 2014.

The long-term forecast for LNG shipping is more positive, with demand for the commodity expected to grow to 410 million tonnes annually by 2025 from the current 249 million tonnes. The outlook for gas has also been boosted by the climate change agreement signed in Paris last week, as gas is a cleaner fuel compared to coal.