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FSRUs provide better ROI than LNG vessels, says shipping consultant

Floating storage regasification units (FSRUs) provide a better investment opportunity than investing in standard liquefied natural gas vessels, says leading LNG shipping analyst Shresth Sharma at Drewry Shipping Consultants.

The shipping analyst is confident that owning an FSRU will give a better ROI than an LNG vessel.  Sharma tells fathom-news that almost 10 years have passed since the first FSRU became operational in 2007, allowing the technology to pass the test of time and enable its know-how to spread.  Their low costs, quick commencement, and flexibility has also led to FSRUs becoming even more attractive than land based terminals.

This also means that charter rates for FSRUs are not expected to change significantly because of the growing understanding of FSRU technology and its increasing competition.

Image: Courtesy of Höegh LNG. LNG is transferred from the LNG Carrier to the FSRU

Sharma draws attention to the many new and emerging LNG importing countries, such as Pakistan, Egypt, the Philippines, Ghana, Bangladesh, to name a few, that are planning to select FSRU technology over land based terminals because of the low cost and ease of installation.  Not only does this make FSRUs more accessible and drive uptake, but Sharma believes that low energy prices make FSRUs a more economical option as companies look to curtail expenditure.

In order to cater for this growing demand, more players are entering the market, which creates competition for the business. Meanwhile asset prices of FSRUs have fallen, making it possible to charter out vessels at lower rates. For this reason, the global FSRU fleet has grown at a CAGR of 21% over the last 5 years. Currently there are 24 FSRUs in operation with aggregate LNG import capacity of 82 metric tonnes per annum (mtpa) and an additional 74 mtpa FSRU import capacity is under construction or in the planning stage.

FSRU fleet development from 2007 to end of June 2017. Image from Drewry’s LNG Forecaster Report.

Drewry Shipping Consultants calculated the rate of return on a newbuild FSRU to be 16%, based on a cost of $250m and a 20-year charter rate of $100,000pd. The rate of return on a newbuild standard LNG vessel is 13%, based on a cost of $185m and a long-term charter rate of $70,000pd.

Even though charter rates are falling, FSRUs still provide a better investment option. Sharma says that FSRU charter rates are expected to stay between $90,000-$100,000pd for the next three to four years, still higher than equivalent LNG charter rates.  Post—2020, the charter rate forecast is less visible.

Image: Höegh LNG’s FSRU.  

Fathom-News
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