LNG

The UK P&I Club has warned about contractual implications of a changing global LNG market affected by geopolitical tensions, evolving trade routes and shifting demand patterns.

The geopolitical landscape has a profound impact on LNG contracts, the P&I Club added. 

For example, regional conflicts, such as seen in the Middle East, have heightened LNGCs’ security risks. Due to attacks on the Red Sea by Houthi rebels, LNGC traffic transiting the area has dropped considerably.

Furthermore, these risks necessitated the inclusion of specific contractual provisions to mitigate potential disruptions. 

Key contractual provisions to consider included trading limits, sanction clauses, designated entities clauses, war risks, piracy clauses and force majeure.

War risk clauses are also common in charterparties and need to be closely considered if the vessel is operating in affected areas.

In addition, there are several operational considerations that should be addressed in LNG contracts, the Club said. 

One critical aspect is the calorific value of LNG compared to fuel oils. To tackle this issue, it is essential to negotiate a post-delivery review period when entering into a timecharter for a newbuilding with performance warranties lifted straight from the shipbuilding contract. 

This review period will allow for adjustments to the warranties to reflect the ship’s actual performance.

Another operational consideration is the risk of fuel oil deteriorating on board. Cheaper LNG means using LNG storage as bunkers, while fuel oil is still on board. Traditional charterparties do not deal with these circumstances, the Club explained. 

This concern can lead to contractual disputes if not adequately addressed. Parties might consider including contractual provisions allocating responsibilities between owners and charterers if fuel oil is kept on board for a long time.

Issues such as allocation of risk when adding special additives to the fuel oil on board, de-bunkering and associated costs should also be addressed, among others. 

Regarding global sanctions, it is crucial for contracting parties to undertake due diligence on any parties that might be involved to ensure they are not sanctioned, thereby avoiding the triggering of the sanctions clause, the Club further advised. 

The 45,000 cu m LNGC ’LNG Jia Xing’ has recently completed her first class survey after five years of operation utilising the LNT A-BOX containment system.

‘LNG Xia Jing’ - formerly called ’Saga Dawn’ - was the first vessel have the LNT A-BOX technology installed in 2020, when the LNGC was delivered from China Merchants Heavy Industries (Jiangsu).

LNGC owner and operator, Capital Group and FORCE Technology have developed Europe’s first extended reality (XR) full mission bridge simulator. 

This initiative represents a major advancement in maritime training, combining cutting-edge technology with decades of expertise, the companies claimed.

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Major LNG players TotalEnergies and JERA elevated supply security concerns at the World Economic Forum in Davos last week. Despite declining Japanese and European LNG offtakes, their demand remains a significant market force, heavily dependent on US supply. TotalEnergies' CEO sought President Trump's assurance of uninterrupted US LNG flows, while JERA's LNG head emphasized higher portfolio diversification toward US sources to enhance Japan’s energy security.

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December LNG Flows Up Significantly Alongside Robust Global Demand Growth

According to our data, global LNG exports in December amounted to 37.51 million metric tons (mmt), marking a significant increase of 3.19mmt (9 percent) from 34.32mmt in November. Pacific Basin exports led December’s growth, with volumes increasing by 2.04mmt (17 percent) to 14.37mmt from 12.33mmt in November. Australia, the Basin’s largest exporter by installed capacity, boosted shipments by 0.57mmt (9 percent) to 7.06mmt from 6.49mmt, primarily driven by Ichthys LNG, where volumes grew to 0.78mmt from 0.57mmt, up by 0.21mmt (37 percent).

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