LNG shipping rates rise with tight cargo supply
This spring and summer have seen Asia and Europe competing for LNG cargos, with a slight premium in the eastern hemisphere reflecting the additional distance. While US cargos may sail to Asia through the Panama Canal, there have also been reloads for Asia from European terminals, and an eastwards flow is symptomatic of a tight market, according to consultancy Timera Energy.
NGW asked ship-broker Simpson Spence Young about the developments in the charter market, given the soaring price of LNG in the Atlantic and Pacific basins.
“Spot rates for summer 2021 are much higher in both the Atlantic and Pacific basins this year compared with last year,” shipping broker Simpson Spence Young’s head of gas Toby Dunipace told NGW July 7. “Last year, at this time, we were seeing US Gulf cargo cancellations and even the most modern LNG vessels being fixed at rates which the older steam turbine fleet are earning today.
“Shipping in mid-2020 was severely affected by the coronavirus and very mild weather, with the market as a result finding itself in a state of oversupply on the product side creating a lot of availability on the tonnage side.
“There has been a coupling of LNG prices and shipping rates, particularly since the cold spike in December to present. When the [SP Global spot LNG price assessment] Japan-Korea Marker began to rise at an alarming rate as the temperature in Asia plunged, charterers were quick to snatch up available shipping. As demand for LNG increased, the fewer remaining vessels were able to command much higher fees. After the weather thawed in February, demand began to dissipate and LNG prices dropped, just when ships became available once more.
“As a result, owners had to be competitive, a common occurrence during the shoulder months of Q1 and Q2. However, across late March going into April onward there was a healthy interest in long-term shipping, which combined with re-stocking efforts ahead of winter, some production issues and temperamental weather has seen rates rebound following the end of Q1 2021.
“Against historical trends, Q2 was actually a very strong quarter for both LNG shipping and LNG commodity pricing. Right now, it is a cargo sellers' market.
“LNG prices are very high, some of the highest they have ever been at this time of year as Europe's current inventories remain low. The problem we are facing is that there is a lack of cargo supply. Such has been the strong reaction to the strong 2020/21 winter, that there is a genuine lack of available cargoes on offer in the market. If demand remains high then the market could see very strong fundamentals for the remainder of this year and into next,” he concluded.