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GDF Suez Cape Ann deal heralds new liquidity for FSRUs

Tue 30 May 2017 by Karen Thomas

<i>GDF Suez Cape Ann</i> deal heralds new liquidity for FSRUs
Seven charters for older FSRUs are due to expire by 2020

Höegh-owned, Engie-chartered GDF Suez Cape Ann will be the first floating storage and regasification unit (FSRU) based in India. H-Energy has fixed the vessel at Jaigarh in the west of the country from June next year.

Various India-based FSRU projects have stalled, mostly because of cost and projected demand. H-Energy chief executive Darshan Hiranandani tells LNG World Shipping that he fixed GDF Suez Cape Ann for a very keen price.

"Two years ago FSRU charter rates were so expensive that only governments or super-majors could afford these ships, to support 20-year offtake contracts," he said.

Mr Hiranandani’s comments raise an intriguing question – what does it cost to charter an FSRU?

LNG carrier charter rates are transparent. In May, modern ships lifting Atlantic Basin LNG spot cargoes were earning US$30,000-US$45,000/day.

“General LNG rates have fallen substantially, but that has been a trend for longer than two years,” says MSI director Stuart Nicoll. “ A lot of old LNG ships are seeking conversion, which should mean more interested parties bidding for FSRU work.

“That should certainly make the FSRU market a lot more competitive.”

Simpson Spence Young (SSY) Gas director Debbie Turner says that without knowing how Engie will support the H-Energy charter, it is impossible to determine the rate. “H-Energy got a cheaper deal [because they] have a small FSRU,” Ms Turner says.

No market

If GDF Suez Cape Ann is affordable, this must be because the market is deteriorating or oversupplied – or because the ship’s circumstances have changed, Mr Nicoll says. “The ship is on long-term charter to Engie, at what seems to be a very high rate if you take Höegh’s accounts at face value, having cost nearly US$300 million to build.

“There was a break clause in the initial 20-year charter last year or at any time thereafter giving two year’s notice, but it doesn’t seem to have been exercised. That would imply that Engie needs a decent income on the vessel to cover its costs. This is especially the case after GDF Suez Cape Ann’s employment fell through on the Tianjin project.”

There is not yet a market for FSRUs, says Drewry senior research analyst LNG Shresth Sharma. “Usually, there is no general charter rate for FSRUs. It depends on the vessel specification – new-built or old, contract duration, vessel-employment flexibility, and so on,” he says.

Rates that FSRUs have fixed in four earlier deals suggest a figure for some tonnage, see table. “In 2013-2015, the rate has hovered between US$120,000-US$150,000/ day,” Mr Sharma says. “However, of late the charter rate for FSRUs has also been coming under pressure and rates are currently around US$100,000 per day.”

Another source, speaking off the record, highlights the variables: “I am intrigued by H-Energy’s comments. FSRUs have not come down that much in price. They are still around US$110,000-US$135,000/day, depending on the project requirements.

“This really is the question. Project requirements saw an Excelerate vessel fixed into Israel at around US$170,000/ day. Why? They took the infrastructure from the Gulf Gateway and placed it offshore Israel, then put the total cost into the charter hire. And within a one-year time period.”

The source says Golar LNG Partners fixed its larger FSRUs for US$125,000-US$135,000/day. Other deals offered a golden handshake.

“The second FSRU that went into Egypt gave a very cheap rate for the first six months, then went back up to the US$120,000s for the remainder,” the broker says. “These vessels are all in the region of 170,000m³ and can process up to 7.4 million tonnes a year.”

A second source says Turkish project partners Kolin, Kalyon and Etki Liman fixed GDF Suez Cape Ann sistership Neptune for a very low US$20,000-30,000/day, “plus significant additional operating expenditure, increasing the total costs to US$50,000-70,000/day. From the shipowner point of view, this may be a competitive deal; this project had an element of urgency”.

Segments

This second source sees FSRU charters as a three or four-tier market:

  • First-generation FSRUs, built in the 2000s
  • Modern, standard-sized FSRUs circa 170,000m³, owned by Höegh, BW LNG and Golar
  • Barge-based FSRUs/converted floating storage units (FSUs)
  • Mitsui OSK’s 260,000m³, 2017-built FSRU, now seeking a short-term fixture

“Charter rates for some of those older ships can be quite competitive, particularly when the vessel in question has been unemployed as an FSRU,” this broker says. “It probably doesn’t cost much more than US$100,000/day to charter such a ship.”

The fourth tier is a category of one: Mitsui OSK’s (MOL's) giant FSRU to be delivered this summer and chartered to Uruguay-based Gas Sayago to import up to 4 mta. However, Montevideo will not need the FSRU until autumn 2018.

MOL director Takeshi Hashimoto told this publication in January that he hoped to fix the FSRU “for about one year”. Industry sources name Turkey, Argentina and Hong Kong as prospective suitors. MOL is said to be negotiating a short-term deal of US$130,000/day – if the counterparty is solid.

Höegh LNG president Sveinung Støhle says Hong Kong Electric (HKE) wants a 170,000m³-260,000m³ FSRU. Enarsa of Argentina is said to be looking for an FSRU the size of a Q-flex or even a Q-max LNG carrier for the Puerto Rosales project.

Industry-watchers doubt these large FSRUs will become the norm.We don’t anticipate a trend towards building bigger units,” says the second. “Ships on this scale do not offer the flexibility that is the unique selling point of an FSRU.

“To build it for a specific project, you need a 20-year charter agreement to justify the cost – all of that comes at a price. You can only justify having so much more storage for a market of significant demand.

“Bigger FSRUs might seem the perfect solution to a high-demand market. But ordering such a unit presents a greater risk than usual for owner and financier."

Liquidity

All the sources we interviewed sense a sea-change in FSRU pricing and liquidity.

By June, Höegh and BW LNG had received the first two of six FSRUs to be delivered this year. That leaves an orderbook of nine. Höegh has ordered two units this year and shipowners including Dynagas, Teekay LNG and GasLog plan to enter the market – but have yet to order.

Even though the shipyards need the business, prices for a 170,000m³ newbuilding are steady, at around US$300 million. Up to seven older FSRUs come off charter by 2020.

“Older ships are being redelivered as they come off their charters, creating downward pressure on prices,” the second broker says. “Many players are waiting to see what happens with this first generation of FSRUs before committing to new tonnage. FSRUs are still a very attractive investment, but this is why we’ve yet to see a significant uptick in ordering.”

Meanwhile, owners with a surplus of conventional LNG carriers are looking to convert older tonnage into FSRUs or FSUs. FSUs are deployed in Jamaica, Malta, Bali in Indonesia, and China.

China National Oil Offshore Co (CNOOC) replaced GDF Suez Cape Anne with the 149,700m³ FSU conversion Neo Energy. Other FSUs are planned in Russia, Bahrain, Malaysia, Java in Indonesia, and India.

This uncertainty deters shipowners from ordering new FSRUs. But as more FSRUs and converted storage units tout for business, increased supply will boost liquidity. H-Energy’s keenly priced deal signals a shift in the market.

“This is creating a kind of marketplace for FSRUs,” says the second source. “Thus far, FSRUs have been pure infrastructure, not shipping, play. FSRUs, far from being a market, have no liquidity. This is not a shipping market. Would-be charterers have simply not had choice.

“Liquidity will grow if the second-hand/conversion market increases the number of older vessels that serve as FSUs, as global trade grows, to unlock new markets.”

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