Erasmus University Rotterdam MSc in Maritime Economics and Logistics 2012/2013 A global perspective of Liquefied Natural Gas vessels capacity. by Dimitrios Panagiotidis Copyright © Dimitrios Panagiotidis Acknowledgements I owe thankfulness to my professors, lecturers, staff and my classmates for the incomparable knowledge I have gained attending the curriculum. Sincere gratitude is hereby extended to my friends and family. Without them this study would have not been possible. Thank you! Special thanks to Professor Bart Kuipers for an exceptional academic guidance during my thesis preparation. Dimitrios K. Panagiotidis Rotterdam, Netherlands I Abstract Today we live in a globalized economy, dominated by series of domino effects and contagious phenomena, a situation that renders the business decisions hard to be made. The significant growth in world energy demand has incited an intense phase of capital accumulation in shipping sector and Liquefied Natural Gas (LNG) sea transport in particular. The fast-paced developments attracted the author’s interest to deepen the research of this specific market. The following dissertation analyzes the current market of LNG tankers through both theoretical and quantitative approaches. The author aims to identify the main factors which determine the global tonnage of LNG fleet. In order to archive that, information available from the public domain, academic curriculum and literature have been used. In addition a research model has been derived, and the regression analysis has been applied in favor of vessels capacity prediction in a given time. Natural gas used to be a rejected product of oil production, these days it is a major source of energy. Liquefied Natural Gas (LNG) used to be considered an expensive method of commodity’s transportation but current costs and the short-term predictions seem to diminish the concern of high expenditure, due to the infrastructure already constructed and that is being built. II Table of Contents Acknowlegdements...................................................................................................I Abstract.....................................................................................................................II Table of Contents.....................................................................................................III List of Tables............................................................................................................V List of Figures.........................................................................................................VII List of Abbreviation...............................................................................................VIII 1. Introduction.........................................................................................................1 1.1 Outline of the Study.......................................................................................... 1 1.2 Increasing Energy Demand................................................................................2 1.3 Natural Gas, Shale Gas and LNG......................................................................3 1.4 The shipping market...........................................................................................6 1.5 Direction towards Sea Transport........................................................................9 2. Empirical overview of LNG market..................................................................11 2.1 Natural Resources Overview.............................................................................11 2.2 Natural gas accumulations................................................................................13 2.3 Natural gas consumption factors.......................................................................15 2.4 European Union Policy......................................................................................17 2.6 LNG Prices........................................................................................................19 2.7 LNG Transit and Tankers..................................................................................22 2.8 LNG Infrastructure: Pipelines & Terminals…....................................................27 2.9 LNG FPSO........................................................................................................28 III 3. Methods and Methodologies............................................................................30 3.1 Research Model................................................................................................30 3.2 Research Hypotheses and Scenarios...............................................................32 3.3 The Methodology...............................................................................................33 3.4 Data Analysis.....................................................................................................35 3.4.1 Global GDP..................................................................................................35 3.4.2 Oil Prices......................................................................................................36 3.4.3 Natural Gas prices........................................................................................37 3.4.4 Global Natural Gas Consumption.................................................................39 3.4.6 Total LNG vessels’ capacity worldwide........................................................41 4. Results and Findings.........................................................................................42 4.1 Regression Analysis...........................................................................................42 4.1.1 Single Linear Regression..............................................................................43 4.1.2 1st Multiple Linear Regression.......................................................................44 4.1.3 2nd Multiple Linear Regression......................................................................45 4.1.4 3rd Multiple Linear Regression......................................................................47 4.2 Scenario Forecasting..........................................................................................48 4.2.1 Scenario forecasting: Natural Gas Consumption.........................................48 4.2.2 Scenario forecasting: Natural Gas Price......................................................50 5. Discussion and Conclusion...............................................................................52 5.1 Market Outlook....................................................................................................52 5.2 Evaluations and Suggestions..............................................................................53 References...............................................................................................................55 IV List of Figures [Figure 1] Increasing Energy Demand: Global GDP and Energy Demand................2 [Figure 2] Natural Gas, LNG and Shale: Typical LNG Liquefaction Process.............4 [Figure 3] Natural gas, LNG and Shale: Horizontal Gas Well.....................................5 [Figure 4] The Shipping Market: Demand and Supply................................................6 [Figure 5] The Shipping Market: An Integrated Model................................................7 [Figure 6] Natural Resources Overview: Population and Income Growth................11 [Figure 7] Natural Resources Overview: Energy by fuel and by primary use...........12 [Figure 8] Natural Gas Accumulations: Distribution of proved reserves...................13 [Figure 9] Natural Gas Accumulations: Reserves to Production...............................14 [Figure 10] Natural Gas Accumulations: Assessed shale gas formations................14 [Figure 11] Natural Gas Consumption Factors: US Gas production by type............16 [Figure 12] Natural Gas Consumption Factors: Range of shale gas forecasts........16 [Figure 13] European Union Policy: The Trans Adriatic Pipeline (TAP)...................18 [Figure 14] LNG Transit & Vessels: Major natural gas trade movements................21 [Figure 15] LNG Transit & Vessels: The Integrated LNG System............................22 [Figure 16] LNG Transit & Vessels: Global LNG Fleet Development.......................23 [Figure 17] LNG Transit & Vessels: Potential Scrapping trends of LNG vessels.....24 [Figure 18] LNG Infrastructure: Cargo delivering at Singapore LNG terminal..........26 [Figure 19] LNG FPSO: Shell’s FLNG Prelude.........................................................28 [Figure 20] Research Model: The determinants of LNG fleet capacity....................29 [Figure 21] Global GDP per capital: Development 1988-2012.................................33 [Figure 22] Oil Price: Development 1988-2012........................................................34 [Figure 23] Natural Gas Price: Development 1988-2012.........................................36 V [Figure 24] Global Natural Gas Consumption: Development 1988-2012.................37 [Figure 25] Global LNG fleet capacity: Development 1988-2012.............................38 [Figure 26] Scenario Forecasting: LNG fleet capacity forecast given a 1.5% annual growth of natural gas consumption...........................................................................48 [Figure 27] Scenario Forecasting: LNG fleet capacity forecast given a 5% annual growth of natural gas consumption...........................................................................49