Liquefied Gas Segment
LNG Carriers
The LNG carriers in our liquefied gas segment compete in the LNG market. LNG
carriers are usually chartered to carry LNG pursuant to time-charter contracts,
where a vessel is hired for a fixed period of time and the charter rate is payable
to the owner on a monthly basis. LNG shipping historically has been transacted
with long-term, fixed-rate time-charter contracts. LNG projects require significant
capital expenditures and typically involve an integrated chain of dedicated
facilities and cooperative activities. Accordingly, the overall success of an
LNG project depends heavily on long-range planning and coordination of project
activities, including marine transportation. Most shipping requirements for
new LNG projects continue to be provided on a long-term basis, though the levels
of spot voyages (typically consisting of a single voyage), short-term time-charters
and medium-term time-charters have grown in the past few years.
In the LNG market, we compete principally with other private and state-controlled
energy and utilities companies that generally operate captive fleets, and independent
ship owners and operators. Many major energy companies compete directly with
independent owners by transporting LNG for third parties in addition to their
own LNG. Given the complex, long-term nature of LNG projects, major energy companies
historically have transported LNG through their captive fleets. However, independent
fleet operators have been obtaining an increasing percentage of charters for
new or expanded LNG projects as some major energy companies have continued to
divest non-core businesses.
LNG carriers transport LNG internationally between liquefaction facilities and
import terminals. After natural gas is transported by pipeline from production
fields to a liquefaction facility, it is supercooled to a temperature of approximately
negative 260 degrees Fahrenheit. This process reduces its volume to approximately
1/600th of its volume in a gaseous state. The reduced volume facilitates economical
storage and transportation by ship over long distances, enabling countries with
limited natural gas reserves or limited access to long-distance transmission
pipelines to import natural gas. LNG carriers include a sophisticated containment
system that holds the LNG and provides insulation to reduce the amount of LNG
that boils off naturally. The natural boil off is either used as fuel to power
the engines on the ship or it can be reliquefied and put back into the tanks.
LNG is transported overseas in specially built tanks on double-hulled ships
to a receiving terminal, where it is offloaded and stored in insulated tanks.
In regasification facilities at the receiving terminal, the LNG is returned
to its gaseous state (or regasified) and then shipped by pipeline for distribution
to natural gas customers.
With the exception of the Arctic Spirit and Polar Spirit, which are the only
two ships in the world that utilize the Ishikawajima Harima Heavy Industries
Self Supporting Prismatic Tank IMO Type B (or IHI SPB) independent tank technology,
our fleet makes use of one of the Gaz Transport and Technigaz (or GTT) membrane
containment systems. The GTT membrane systems are used in the majority of LNG
tankers now being constructed. New LNG carriers generally have an expected lifespan
of approximately 35 to 40 years. Unlike the oil tanker industry, there currently
are no regulations that require the phase-out from trading of LNG carriers after
they reach a certain age. LNG carriers had an average age of approximately seven
years, compared to the world LNG carrier fleet average age of approximately
10 years. In addition, as at that date, there were approximately 415 vessels
in the world LNG fleet and approximately 160 additional LNG carriers under construction
or on order for delivery.
LPG shipping involves the transportation of three main categories of cargo:
liquid petroleum gases, including propane, butane and ethane; petrochemical
gases including ethylene, propylene and butadiene; and ammonia.
LPG carriers had an average age of approximately nine years, compared to the
world LPG carrier fleet average age of approximately 16 years. As of that date,
the worldwide LPG tanker fleet consisted of approximately 1,277 vessels and
approximately 232 additional LPG vessels were on order for delivery through
2018. LPG carriers range in size from approximately 100 to approximately 86,000
cubic meters. Approximately 50% of the number of vessels in the worldwide fleet
are less than 5,000 cubic meters in size. New LPG carriers generally have an
expected lifespan of approximately 30 to 35 years.
LPG carriers are mainly chartered to carry LPG on time-charters, contracts of
affreightment or spot voyage charters. The two largest consumers of LPG are
residential users and the petrochemical industry. Residential users, particularly
in developing regions where electricity and gas pipelines are not developed,
do not have fuel switching alternatives and generally are not LPG price sensitive.
The petrochemical industry, however, has the ability to switch between LPG and
other feedstock fuels depending on price and availability of alternatives.
Conventional Tanker Segment
Oil has been the world’s primary energy source for decades. Seaborne crude
oil transportation is a mature industry. The two main types of oil tanker operators
are major oil companies (including state-owned companies) that generally operate
captive fleets, and independent operators that charter out their vessels for
voyage or time-charter use. Most conventional oil tankers controlled by independent
fleet operators are hired for one or a few voyages at a time at fluctuating
market rates based on the existing tanker supply and demand. These charter rates
are extremely sensitive to this balance of supply and demand, and small changes
in tanker utilization have historically led to relatively large short-term rate
changes. Long-term, fixed-rate charters for crude oil transportation, such as
those applicable to our conventional tanker fleet, are less typical in the industry.
As used in this discussion, “conventional” oil tankers exclude those
vessels that can carry dry bulk and ore, tankers that currently are used for
storage purposes and shuttle tankers that are designed to transport oil from
offshore production platforms to onshore storage and refinery facilities.
Oil tanker demand is a function of several factors, primarily the locations
of oil production, refining and consumption and world oil demand and supply,
while oil tanker supply is primarily a function of new vessel deliveries, vessel
scrapping and the conversion or loss of tonnage.
The majority of crude oil tankers range in size from approximately 80,000 dwt
to approximately 320,000 dwt. Suezmax tankers, which typically range from 120,000
dwt to 200,000 dwt, are the mid-size of the various primary oil tanker types.
The world tanker fleet included 444 conventional Suezmax tankers, representing
approximately 14% of worldwide oil tanker capacity, excluding tankers under
10,000 dwt.