The LNG industry was traditionally built on long-term stability, stable supply-purchase agreements, fixed routes and specific ports. For decades, this "point-to-point" model provided predictability for both buyers and sellers.

Today’s LNG market is not as simple. New players enter the field, the market is becoming more complicated, buyers (both old and new) seek diversion optionality via more flexible DES supply or through FOB contracts. Main drivers here are greater commercial value and operational flexibility.

In turn, sellers, are adapting just as quickly. Instead of only selling FOB, they seek to offer DES supply and in exchange for granting destination flexibility moving away from the "single source supply" constraint. By offering non-source specific DES deliveries with intra-regional flexibility, they can provide a more competitive product to a broader client base, whilst optimising their own supply portfolios.

Effective shipping is the common thread in both scenarios but, without expertise in LNG shipping, the complexity that comes as a result of this increased flexibility can turn into greater operational and financial risk.

Up until now companies have had little alternative to building this expertise in-house, an activity which is time consuming, costly and requires considerable management effort. What if all or part of the shipping function could be outsourced to an organisation that's sole purpose is to provide quality end-to-end shipping services to LNG clients?

A Decade of Transformation (2016-2026)

• Production volume: Output has nearly doubled from 255 to 470 mtpa and is forecast to reach 600 mtpa by 2030.
• Market penetration: The number of importing countries has risen from 34 to 48, an increase of almost 40%.
• Market structure: The share of spot trading has expanded from 15% to nearly 40%, reflecting a growing appetite for flexibility and real-time optimization.
• Shipping capacity: The global LNG fleet has grown from 420 to 740 vessels, with a further 290+ currently on order.

The shift in market dynamics

LNG market expansion is being shaped by two parallel evolutions: a) surge in new participants, and b) fundamental change in how the market trades.

On the supply side, production growth is driven largely by new volumes from the Americas. Traditional FOB contracts or tolling models are still the base, but slowly giving way to DES contracts, enabling sellers to diversify their customer base and capture more value.

On the demand side, especially since 2022, energy security has brought new buyers to the table. Utilities and industrial players now want direct access to supply, often with greater destination flexibility built into contracts.

The expertise bottleneck

Direct DES sales for sellers, or procurement on FOB basis with complex delivery schemes for buyers, both require deep expertise in shipping and commercial optimization. As the market expands, both new and established players face a talent bottleneck, a shortage of professionals who can master the operational and contractual intricacies of LNG shipping.

Often companies try to close this gap either by developing talent internally or through headhunting. But there is also a third path, which may be more efficient and reliable.

Independent service provider with specialized expertise

Instead of building in-house shipping and logistics optimization capabilities, companies can leverage independent LNG shipping service provider with team that has required depth of experience to manage aggregated shipping portfolios efficiently and in best interests of the customer. This frees LNG market participants to focus on growing their portfolio and maximizing extrinsic value of trade, while specialists ensure cargoes are shipped in the most optimal way.

Pre-2019: The Era of Easy Money

Before IFRS16 took effect in 2019 and throughout the prior decade with historically low interest rates, for many LNG players, the burden on the balance sheet was relatively light. Time charters were the default solution to meet LNG shipping needs. With cheap liquidity, adding vessels onto their own books felt manageable, and companies grew accustomed to carrying these liabilities at a relatively low cost and without the need to reflect time charters on their balance sheets.

2026: The Current Situation

Today's landscape is very different, with the need (under IFR16) to reflect a company’s long-term leases on its balance sheet, long-term charter agreements are more comparable to purchasing a vessel outright. When compared to pre-2019, the adverse changes can be summarised as:

• IFRS16 in force: Medium and long-term time charters must now appear as a right of use (“ROU”) asset with the corresponding lease liabilities shown on the charterers balance sheets. Compared to pre-IFRS16 accounting treatment, the gearing (or leverage) ratio increases and return on assets (ROA) reduces. The changes to these accounting metrics, makes a company look less attractive to investors, financial analysts and credit rating agencies.
• Higher vessel costs: Newbuild LNG vessels will average $250M in 2026, an increase from an average of under $200M during 2015–2022. Long-term leases will inflate to reflect these higher build costs.
• Debt service costs : Since 2019, interest rates have increased, resulting in an increase working capital costs as well as the costs of serving debt.
• Liquidity crunch: Market volatility (particularly in commodities), increases value at risk (VAR) further places a greater strain on working capital.

As a result of these combined effects, LNG charterers, particularly their CEOs, CFOs and treasurers are now more focused on balance sheet health and their key question when it comes to LNG shipping is: ”Are there alternative ways to secure shipping coverage, on a term basis, with minimal balance sheet impact?”

At Fidartis, we know the answer is “Yes”.