With two elderly vessels reborn as floating storage units, a Malaysian giant is focussing on its next generation of ships, which, it says, will be based on the needs of its all-important charterers.

Malaysia's MISC is starting to think about its next generation of LNG carriers as some of its oldest vessels move on to new lives in other sectors of the business.

When speaking to TradeWinds in Kuala Lumpur recently about the company’s five, 1980s-built Tenaga ships, MISC's vice-president for LNG Business, Faizul Ismail, said: "We are thinking about [a] renewal programme for these vessels. Charterers will prefer newer vessels because it makes sense."

Ismail says the size and propulsion of future LNG units will be very dependent on what the charterer would like to do.

For MISC, the charterer is all important, particularly since the bulk of its existing LNG fleet is with parent Petronas and its subsidiaries.

"If their aim is delivering as much cargo as possible, then we will look at the boil-off [rates]," he said. "If they are looking into minimising their transport costs, then we will look at propulsion."

The size of the vessels will be determined by the kind of contract the charterer has with the buyers and the trade routes the ships will operate on. He believes that the Q-flex and Q-max-capacity vessels are a project-specific extreme.

"What we need to do going forward is to look at the emergence of the new Panama Canal and the potential for exports of LNG from [the] US and shale gas from Canada, then vessels size will be determined by that," he said.

All of MISC's existing LNG carriers are fitted with membrane-type cargo-containment systems but Ismail and his team are open-minded.

"Ideally we will say we will go for [a] membrane [type], as we have been doing for last 30 years, but we feel it is also timely for us to reconsider that perhaps Moss should be another way for MISC," he said.

"It is quite open. We are doing our study as regards containment system and propulsion and that will be the consideration in the event we go for newbuildings in the future."

Ismail says MISC's return to the newbuilding market will ultimately depend on the charterer and the price of vessels. The company will only order against long-term contract business and not on a speculative basis.

"We are not in a hurry, as what we have seen last year when many other operators went on to buy ships," he said.

Two of the five Tenaga vessels have already found new homes.

In a few weeks, the Tenaga Satu (built 1982) and Tenaga Empat (built 1981) will start receiving commercial cargoes in their new role as floating storage units (FSUs) for Petronas Gas and Malaysia’s first LNG-import terminal.

"It is basically an extension of the employment of the vessels going forward," Ismail said.

The other three ships remain on their 15-year charters to Petronas, which are due to conclude after 2020. Two are currently in lay-up, which Ismail assures TradeWinds is not for operational reasons but more a reflection of how the parent outfit chooses to manage its shipping needs. The third vessel is trading.

"If the charterer allows us, then these vessels can be redeployed and we can have the opportunity to put in newbuildings as replacement," he said.

"LNG vessels are maintained at a very high standard so we should always make every effort to find alternative employment for them in the future. As these vessels reach 20 years, we need to make an effort to use them."

"The industry has shown that application for regas is an opportunity for ageing vessels to move into their next life."

Petronas would appear open to its subsidiary exploring other uses for its more elderly vessels. MISC has been seen participating in some FSRU-type tenders.

Ismail confirms the company is in continuing discussions with the ships' charterer on this and while MISC is not participating in anything, he says it will be in the future.

But there is more to the MISC LNG fleet than ageing ships. Aside from the Tenaga quintet, the remaining vessels range from 17 to just three years old.

While some of MISC's existing ships may be deployed for Petronas’s upcoming project business, it is likely that the parent outfit may have additional tonnage requirements going forward.

Ismail says MISC is working with Petronas on its coalbed, methane-backed project GLNG in Gladstone, Australia, where the state giant is buying some 3.5 million tonnes per annum (mtpa) of LNG that could require three to four LNG carriers from 2015 to 2016. In addition, MISC is talking LNG shipping with Petronas on its likely Canadian exports and for the company’s two floating LNG (FLNG) projects off East Malaysia, where MISC has been working with its parent on the hull designs for the floating unit.

But Ismail said: "We have to be competitive in all offers to Petronas."

He insists MISC has been looking at how the charterer can best optimise the number of vessels the company has with the coming onstream of its FLNG and GLNG projects. On FLNG, he says the shipments should be managed from the current fleet but, more broadly, he said: "If they add more molecules, it is obvious that they will need more tonnage. Once Petronas establishes its portfolio, it should become clear — but it is still a big equation."

Ismail says MISC will also continue to pursue third-party business. The company is still participating in the ever-delayed Brass LNG project in West Africa, has submitted pre-qualification offers for the Ichthys and Yamal LNG newbuilding tenders and is watching the progress on a second LNG project in Papua New Guinea.

MISC has already dipped a toe in the water on this, prompting long-term contracts with Yemen LNG for two vessels.

"We are also looking at potential long-term charters in Australia with other parties," he said.

MISC has experienced the problems that can befall LNG operations: around eight years ago, one of its vessels experienced weather-related containment-system damage after being caught in a typhoon off Japan. But Ismail says that good operators — among whom, not surprisingly, he ranks MISC — that maintain the operational parameters, for which the vessel was designed, can see vessels that have traded for about 30 years go on for a further 20.

"If we can reach a 60-year operational life, then that will be an achievement for the LNG industry," he said.

In today's hot market, Ismail wishes he had vessels to charter and admits MISC has had would-be customers asking for ships. But it remains charterer Petronas, usually working through its trading arm Petronas LNG Ltd (PLL), that calls the shots on the units that are not there for MISC to relet.

"At the end of the day, the cycle of energy charter hires is unreal and extreme," Ismail said.

"The industry needs to realise we have to have a sensible charter hire to ensure LNG shipping keeps its reputation and the high levels of performance required for carrying LNG. We cannot treat LNG carriers as normal vessels."

Going forward, Ismail is concerned about the poaching of experienced LNG seafarers, particularly with the incoming wave of new tonnage in the next three years.

The company is proud of its own training academy, which qualifies 200 to 250 cadets a year — but he has seen the problem at first hand when the last wave of LNG newbuildings hit the water.

"I hope we can stabilise the LNG industry and not be so gungho about the number of vessels coming out and the charter hire which is out there but come to our senses about what we need to maintain the high standards of the industry," Ismail said.

"Reliability, efficiency — it is what all owners should be looking at all the time and not just the dollars and cents."

BY LUCY HINE KUALA LUMPUR