Drewry: FSRUs currently offer better returns than LNG ships

JULY 26, 2017 — Despite falling freight rates for floating storage regasification units (FSRUs), investment returns at current asset prices and charter rates are higher compared with standard LNG vessels, according to the latest edition of the LNG Forecaster report published by Drewry Shipping Consultants Limited.

The global FSRU fleet has grown at a CAGR of 21% over the last five years, and currently there are 24 FSRUs operational with an aggregate LNG import capacity of 82 mtpa. An additional 74 mtpa of FSRU import capacity is under construction or in the planning stage.

FSRUs are attractive because of various advantages they have over land-based terminals, such as low cost, quick commencement and flexibility.

However, of late, rates for FSRUs have come under pressure and are currently around $100,000 per day, markedly lower than $120,000-130,000 per day in 2013-15.

There are several reasons for this, says Drewry.

First, the number of players in the FSRU segment is growing, which is creating competition for the business. Secondly, falling asset prices of FSRUs is making it possible to charter out vessels at lower rates. Third, several old LNG vessels are looking to get an FSRU conversion contract, which adds to the pressure on charter rates.

Despite falling rates, owning an FSRU gives a better return than an LNG vessel.

Drewry has calculated the rate of return on a newbuild FSRU to be 16% on a unit that currently costs $250 million and earns a long-term (20 years) charter rate of $100,000 per day. Meanwhile, the rate of return on a newbuild standard LNG vessel is just 13% on a vessel that currently costs $185 million and earns a long-term charter rate of $70,000pd. Therefore, despite falling charter rates, FSRUs are proving to be a better investment option than standard LNG carriers.

“We expect long-term charter rates for LNG carriers to improve in the coming years as the market is expected to tighten,” said Shresth Sharma, Drewry’s lead LNG shipping analyst. “However, we do not believe that charter rates for FSRUs will significantly change because of increasing competition and a growing understanding of FSRU technology. We expect charter rates for FSRUs to stay in the range of $90,000-$100,000 per day for the next three to four years, still higher than equivalent LNG charter rates.”