There is a bubble in global shipbuilding - and not only is it growing every day, it is keeping the entire industry afloat.
The bubble is demand for the ships that carry the world's fastest growing energy source, liquefied natural gas, or LNG.
However, when the bubble bursts - and many analysts believe they already know the date, some three years hence - there will be many expensive ships lying idle. It is, they say, like watching an accident in slow motion.
Today, global demand for LNG is rocketing, assisted largely by the flight from nuclear power after reactor meltdowns at Japan's Fukushima Dai-ichi nuclear plant a year ago. And the demand for LNG ships to deliver this specialist hydrocarbon energy source is tied to the rocket's tail.
"So, day rates [to charter] LNG ships in 2010 were US$37,000. Those rates soared to a peak of $160,000 in 2011. And even though they've come down a bit, they'll still likely average around $140,000 in 2012, possibly even going as high as $200,000 per day," says Matthew Carr, an analyst with Investment U Research in the United States.
"If you're doing the math, a jump in rates to $200,000 would be a 441 per cent increase in just two years. And here's the other kicker; there's a shortage of LNG carriers."
The existing global fleet of 365 LNG carriers is 98 per cent utilised, and brokers such as Clarksons of London say usage is not likely to fall below that level until 2015.
Also, LNG carriers are highly complicated ships to manufacturer, and few shipyards have the capability to build them. Suddenly, however, the world needs more of them. From five LNG carriers on order in 2010, there are now more than 70. However, there needs to be over 100 more if the required 175 new LNG tankers are to built by 2017 to meet rising demand from China and Japan. And that does not even begin to deal with the growing LNG spot market.
Needless to say, the shipyards are delighted.
Within the past month South Korea's two leading shipbuilders announced a slew of new orders.
Hyundai Heavy Industries won orders worth $1.1 billion (Dh4bn) to build four LNG carriers for an unidentified European company, while its affiliate Hyundai Samho Heavy Industries secured a separate contract with Norway's Golar LNG for two LNG carriers with options for two more.
The vessels are expected be delivered between the second quarter of 2014 and the first half of 2015. STX Offshore & Shipbuilding also announced orders for two LNG carriers in a $395 million deal with Sovcomflot of Russia.
But all this takes place against a bleak outlook for global shipbuilding in general, according to research published last month.
A report by Danish Ship Finance showed the size of the global order book is 46 per cent below the 2008 peak and expected to be almost halved within the next 12 months.
"Shipowners' ability to take delivery … is correlated with the situation in the freight markets and the ship financing squeeze," the report said. "If market conditions deteriorate any further some owners may fail to take delivery in 2012, not to mention that their appetite for ordering new vessels will be reduced."
For the South Korean and Chinese yards with LNG-vessel capability, however, the prognosis is brighter.
"We expect that South Korean shipyards together with the largest Chinese shipyards will be the better positioned to stick it out over the next two years," said the Danish report, but it warned: "On average, we forecast that new building prices for less sophisticated vessels [non-LNG vessels] and shipyard profitability could decline by as much as 15-20 per cent in 2012."
Most of these LNG orders are not "flash-in-the-pan" contractsbut are a function of the long-term nature of the LNG business, says Lloyd's Register.
"Most LNG carriers ordered to date have been associated with big gas projects, such as Qatargas out of Ras Laffan, or Australia's Pluto gas project," says Nick Brown of Lloyd's Register. "They are part of so-called LNG trains supplying LNG on a dedicated route, like floating infrastructure, and are part of 20-25-year projects.
"But many new ships have been ordered on the basis that there was an expectation that a large spot market would develop."
The industry newspaper TradeWinds agrees, reporting: "If there is a [shipping] sector to be in right now it is LNG."
"The LNG carrier order book has a strong presence of independent owners," says Mike Corkhill, the editor of LNG World Shipping.
"Greek ship owners. Owners in northern Europe and Scandinavia. Japanese owners. The overwhelming majority of their LNG ship orders have been placed on a speculative basis. The fact that almost 90 per cent of the current fleet is fixed on long-term charter means that relatively few LNG carriers are available to meet the industry's spot cargo and short to medium-term needs," says Mr Corkhill. "This will ensure that owners with uncommitted ships will continue to accrue healthy returns for at least the next two years."
But as early as last September, the international energy analyst Wood Mackenzie was warning against this building boom.
"While near-term prospects remain good, the danger is that ships ordered in today's rising market are likely to be delivered into a declining freight market," wrote Andrew Buckland, Wood Mackenzie's senior LNG shipping analyst.
He predicts the bottom will fall out of LNG charter rates as ship orders are filled and new gas-supply projects in the Pacific Basin come on stream, removing the need to move LNG cargoes over long distances.
"Ships ordered now which will be delivered around 2014-2015 have no guarantee that new supply projects will choose to charter these vessels rather than order their own purpose-built ships," Mr Buckland says. "If the recent wave of speculative LNG ship orders were to continue, they would risk uncertain employment upon delivery."
Current charter activity would seem to reflect Mr Buckland's warnings that the bottom will eventually fall out of the market.
Recent reports in TradeWinds show charter rates up to three years ahead holding firm. The integrated energy firm Eni recently chartered the 174,000-cubic-metre LNG carrier Stena Crystal Sky for three years at about $145,000 per day.
However, "longer-term deals of five years plus on some of the LNG new buildings are being quoted at between $80,000 and $85,000 per day, with the majors pushing for daily levels of sub-$80,000", the shipping journal reports.