L0ndon, 16 December 2009 

The world LNG fleet is set to stabilise in 2010 after two years of hectic growth that have seen capacity grow more than 50 percent, eroding carrier rates and making huge amounts of new gas available to Europe and Asia. 

Carrier rates should rise to more viable levels and delivery volumes should level off, easing downward pressure on British and European gas prices.

Fleet growth has been exponential. While it took 34 years to reach 100 vessels in service (1998), the 200 mark was reached in only eight (2006) and 300 vessels in 2-1/2 (Jan 2009).

New vessels are also much larger. The massive new Q-flex carriers (with capacity of 216,000 cubic metres) and Q-max ships (265,000 cubic metres) are 60 percent and 90 percent larger than the conventional carriers (125-145,000 cubic metres) that make up the bulk of the fleet.

By September 2010, Qatar's specialist LNG shipping company, Nakilat, one of the largest operators, will have 25 wholly owned carriers and 29 jointly owned ones in service, including 9 conventional vessels, 31 Q-flex craft and 14 Qmax. Increasing numbers and larger capacity vessels have pushed worldwide fleet capacity up 55 percent in two years.

Given the enormous capital costs involved in constructing them, most ships are built to order to operate one or two dedicated routes, delivering LNG on long-term contracts.

The tramp market is limited. Even so the massive expansion caused spot rates to halve to just $25,000 per day by May, down from $40-50,000 for most of 2008, and a peak of $80,000 in Sep 2007.

But much of the building boom is now over. With LNG demand now weakened by the recession and the massive expansion of shale fields in North America, operators are unlikely to place big new orders for fleet expansion. Just over 20 vessels are due to be delivered next year, down from more than 40 in 2009.

Existing capacity should be absorbed by new liquefaction trains still coming onstream in the Middle East and Asia: in some ways, the fleet expansion raced ahead of the terminals, and the market is now rebalancing.

More moderate fleet expansion and the postponement of liquefaction trains will slow the inundation of LNG flooding gas markets in Britain, continental Europe and elsewhere this year.

While the market will remain slack in 2010 and 2011, the supply-demand gap is unlikely to widen further, helping put a floor under wholesale gas prices outside North America.

Ends --

By John Kemp is a Reuters columnist. The views expressed are his own