Norwegian LNG shipping specialist Flex LNG is eyeing a new round of expansion, taking advantage of the promising outlook of the LNG market and the ongoing green fuel transition in the maritime industry.
Oystein Kalleklev, CEO of Flex LNG, watched as the LNG market started off 2021 on a high note, which pushed up LNG prices to unsustainably high levels.
“The market has now normalised and with inventories in Europe being run down over the winter we see more pull from Europe resulting in less tonne mile and tonne time and thus softer rate environment given the flurry of newbuildings being delivered at start of the year of which several ships were delayed from 2020 to early 2021,” Kalleklev says.
Kalleklev is optimistic on the prospects of LNG shipping market due to several strong market drivers.
“In the short-term, weather plays a big role as we have certainly experienced this past winter. Then we have economic growth which we do expect to bounce back with vaccines being rolled out coupled with tons of fiscal and monetary stimuli,” Kalleklev elaborates.
“Then we have the political aspect which is more a long-term factor with increasingly higher focus on both cleaner air like we have seen in China with their Blue Sky initiative, but also less greenhouse gas emissions with US now joining the global community under the Paris Agreement. Last factor is pricing meaning LNG needs to be competitive with other fuels and with higher carbon prices we do expect LNG to continuously grab market share together with renewables as flexible gas fits well with intermittent renewables,” he adds.
To sum up, Kalleklev is relatively upbeat short term while remaining particularly optimistic about the long term prospects as the new ships offer huge efficiency improvements compared to the older generation of ships.
The company has a mix of some term contracts, some ships under variable index hire and the rest on spot.
“Our aim is to increase our backlog by putting more ships under longer term contracts as we do have the most efficient ships in the industry. Furthermore, we have built up a first-class in-house shipmanagement company both technical and commercially, so we are very well positioned to carry out our business strategy as we have the right ships, at the right time and under the right management in our view,” Kalleklev says.
In Kalleklev’s opinion, LNG is the best marine fuel available today when considering technical, economically, environmental, and logistical parameters. “Sure, LNG is not perfect, but it is a great improvement particularly when it comes to local air pollution, but also when it comes to greenhouse gases. Fuel is however just part of the solution so it needs to be coupled with smarter ship designs and operationally improvements. Down the road LNG also offers a pathway to further reduction of emissions by drop in fuels like biomethane or e-LNG or using carbon capture equipment,” Kalleklev explains.
Going forward, Kalleklev says the company’s top priority remains building longer term commitments with customers.
“Having a greater revenue backlog, will de-risk our portfolio. This will enable us to focus on new growth opportunities again as we are keen to take an active role in the expansion of LNG shipping. We are also open to consolidation if that makes sense as the industry is rather fragmented given the capital intensive nature,” Kalleklev concludes.
This article first appeared in Maritime CEO magazine, published this month. Splash readers can access the full magazine by clicking here.
