We continue to hear tales of doom and gloom about the Asian, particularly South-East Asian, maritime industry. Mostly, those tales are based upon the undoubted disaster that is the over-bought and over-borrowed offshore oil and gas sector. That sector, while obviously important, is not the be all and end all of the wider industry. And, even it is showing very definite signs of recovery after too many years of gloom.
Baird Maritime has agreed to join with Reed Exhibitions to organise the Work Boat World Conference alongside Reed's mighty Asia Pacific Maritime 2018 Exhibition in Singapore in mid-March next year. As part of the preparations for that very important event, Reed's marketing people asked me to set out my views on the state of the Asian work boat market for their promotional e-book. Their first question was: “What do you see as some of the opportunities and challenges for the workboat market here in Asia?" My answer is as follows:-
There will continue to be many. First, and most obviously, political. The South China Sea, North Korea, Myanmar and Cambodia stability problems will continue to present challenges. Democratic desires in Hong Kong and Singapore may necessitate changes and Thailand, Malaysia and the Philippines will require further stabilising. In its own mild way, South East Asia is something of a sea of instability. That, as usual, will offer both opportunities and challenges in both the naval and maritime security sectors. In other words, more warships and patrol boats.
Environmental factors, earthquakes, volcanoes, typhoons, tsunamis and epidemics, will continue to require large scale relief and evacuation efforts. These factors reappear relentlessly on almost an annual basis. The vessels required for such work are generally available in the form of warships, seaworthy ferries – particularly large fast ones such as those from Austal, Incat and Damen, and OSVs. The region, generally, is slowly improving its responses to natural disasters. It has the some of the vessels but lacks organisation in the main. Most disaster responses still require outside assistance.
Energy acquisition and creation
Oil, gas, wind and solar and, perhaps, tidal are all important maritime activities now. Asian nations quite rightly tend to avoid the subsidy driven development of energy resources but now that the north Europeans have improved the efficiencies of offshore, wind, solar and tidal power, it seems likely that Asia will start to utilise them absent Europe's development costs. That will mean a whole new demand for specialised service vessels. At the same time, oil and gas will inevitably recover and rig and OSV utilisation will increase in response.
Ports will continue to expand and develop. China's “Belt and Road" concept seems likely to inspire significant additional trade. That will require more and bigger container ships. The land aspects of it will necessitate iron, coal and other minerals so the dry bulk trade will continue to grow again. In the ports, tugs will have to become more powerful and more versatile so as to handle ever larger ships. The latest container ships are now of 22,000TEU size and getting bigger. Pilot boats, line boats and all the working craft of a port will similarly have to get bigger and better.
The Isthmus of Kra Canal proposal has recently been raised again. While it may just be the Chinese and Thais teasing the Singaporeans, it remains a vague possibility. If ever realised, it will require enormous numbers of workboats of every imaginable kind for its construction, operation and maintenance.
Marine construction continues apace with port development, reclamation, dredging, the aforementioned Kra canal, tourist developments and undersea pipelines and cables all requiring dredgers, pipe and cable layers, barges, cranes and other attendant craft. That sector seems destined to continue its inexorable expansion.
Fishing and aquaculture are changing rapidly as the world realises its stocks of wild fish are limited. The fishing industry is having to become far more efficient, economical and less wasteful. A new generation of fishing boats is being introduced in Europe with those characteristics. Fish farming is growing and moving further offshore for environmental and aesthetic reasons. Its equipment and the vessels that serve it will have to get bigger and more powerful. Asia will undoubtedly follow Europe in all these developments.
Passenger vessels, both ferries and cruise, have a very bright future. Cruising in smaller “boutique" ships is becoming rapidly more popular on both inland and coastal routes. We continue to see new vessels being launched. South East Asia, generally, has earned an appalling reputation for ferry fatalities. The Philippines, Bangladesh, Myanmar and Indonesia, between them, are responsible for more than 65 per cent of the world's annual ferry fatalities. That has to stop and many new, safer vessels will be required to do so.
I hope that the governments of those four most dangerous countries for ferry travel in Asia will decide once and for all to reform their domestic ferry industries. Nothing less than a complete root and branch removal of most of their existing operators and their unseaworthy vessels will be sufficient. Apart from the vital result of making ferry travel much safer, it would revitalise the ferry building and equipping sectors in the region.
Properly trained crews are and will continue to be a major deficiency in all sectors. Their absence, is, in large part, the reason for the disproportionately high numbers of fatal accidents in the region. All maritime nations in South East Asia will have to do considerably better in terms of training, educating and recruiting competent crews.
There will be much to talk about and learn at Asia Pacific Maritime at Marina Bay Sands in Singapore from March 14 – 16 next year.
33 new LNG ships have been ordered so far this year, compared to 19 in the whole of 2017 and just six in 2016. Owners have been tempted by higher spot/short-term charter rates, still-low newbuilding prices and rapidly growing LNG trade.
New LNG supply is being absorbed far more easily than many expected by booming demand in Asia. A new wave of FIDs on new supply projects is expected to create even more demand for shipping. But owners need to be careful they don't over order.
There is still a huge number of ships ordered in the 2011-2014 LNG newbuilding boom to be delivered to the fleet and there is a long history of new ships arriving before new supply.
New LNG supply is creating new trade routes
LNG shipping is benefiting from an unprecedented wave of new LNG supply projects coming on stream in a relatively short period. Between 2015 and 2020 LNG production is forecast to increase by over 150 mmtpa; in comparison, supply rose by just 20 mmtpa in the five year prior to 2016.
For LNG shipping this supply boom is particularly beneficial, as much of it is coming from the US Gulf which is a long way from the largest LNG markets in Northeast Asia. To move one mmtpa of LNG from the US Gulf to Japan requires 1.9 ships, compared to 0.7 to move the same amount of LNG from an Australian project.
Record demand from China
The huge increase in LNG supply has so far been comfortably absorbed by rapid growth in demand. China has been at the forefront of demand growth with imports in the first half of 2018 up 50 per cent, following 46 per cent growth in 2017.
Chinese LNG demand is also taking a more pronounced seasonal shape as new terminals have opened up in the north of the country requiring more LNG in the winter months.
FIDs imminent on next wave of LNG supply
The apparent ease by which the current wave of new LNG supply is being absorbed by markets has turned attention to who will develop the next wave of LNG supply. Wood Mackenzie currently forecast that 114 mmtpa of new LNG capacity will take FID between 2018 and 2021.
These pre-FID projects will not provide any new LNG to the market until at least 2023 and most of it is unlikely to be available to ship before 2025. Between the current wave of new LNG supply and the anticipated pre-FID wave there will be a period of low LNG supply growth. Ships being ordered now will deliver just in time for the start of the period of low supply growth.
Still low yard prices
In real terms newbuilding prices for LNG ships have never been lower. Elsewhere in the shipping industry newbuilding prices have begun to creep up and prices for LNG ships will eventually follow the trend. The newbuilding prices look even more attractive when you consider how much more you get for your money with the latest ship designs. The temptation for owners is to order sooner rather than later whilst the newbuilding price remains low.
New ships versus old
Vessel design and technology advances have seen the typical new order LNG ship become larger and more efficient, making ships ordered even three or four years ago outdated. Ship orders now are typically sized at 170-180,000m³, compared to 155,000m³, dues to design advances and to maximise carrying capacity through the newly expanded Panama Canal.
In addition, the introduction of gas-injection slow-speed engines has offered fuel savings of over 20 tonnes per day even against modern DFDE/TFDE engines and 75 tonnes per day against older steam ships.
Huge orderbook to be delivered
So far this year 36 new vessels have been added to the fleet and three have been scrapped. A further 22 are scheduled for delivery before the end of the year – if these vessels are delivered on time and no further vessels are removed from the fleet, capacity will grow by 13.0 per cent in 2018 (up from 6.8 per cent in 2017). The 37 vessels currently scheduled for delivery in 2019 will grow the fleet another 7.6 per cent.
LNG trade is growing strongly but our forecast of an 8.2 per cent expansion in 2018 lags behind fleet capacity growth. More long-haul imports from the USA to Asia should see tonne-mile demand grow at a faster rate, leaving a delicate balance between supply and demand for LNG ships. But forecast trade growth of 13.7 per cent in 2019 should tip the balance in favour of ship owners.
US LNG exports are creating more seasonality in shipping
Swings in where US exports go are creating more volatility in spot/short-term LNG charter rates. Peak demand periods in Asia see more US exports attracted to long-haul destinations, taking ships out of the Atlantic basin. This drives up charter rates globally, but drives up rates even higher in the Atlantic basin.
In June charter rates in the Atlantic basin peaked at around US$90,000/day, whilst rates in the Pacific Basin at the same time were closer to US$70,000/day.
Industry outlook – too little too late or too much too soon?
LNG is one of the fastest growing sectors in shipping and design advances have made new ships more attractive compared to much of the existing LNG fleet. The market clearly wants more of these new ships and it could be said orders have been too little too late.
But looking at the wider picture there is a lot of new capacity still to be delivered from the current orderbook. There is under-used and laid-up older shipping capacity that could be more fully employed. The next pre-FID wave of LNG supply won't come on stream until mid next decade. If ordering activity continues at recent levels there is a high danger that it will be too much too soon!
By Andrew Buckland, Wood Mackenzie