LNG freight rates rise as winter approaches in an already volatile market
Friday kicked off the heating season in the northern hemisphere, and liquefied natural gas (LNG) freight rates also began their annual climb.
This year could be different. Europe and Asia are engaged in a fierce cargo battle as stocks remain low and prices hit new records with benchmarks exceeding $ 30 / MMBtu in both regions.
After a lull in the shipping market, things are heating up. Given the increase observed for LNG this winter, freight rates could double by the end of the month, according to some analysts.
“As we see the repair window move into November, charterers see winter freight now included in these discussions,” shipping broker Fearnleys AS said in a note to customers. “There is also a lack of visibility on winter tonnage, which adds to the firmer outlook.”
As this winter approaches, the charter market has been dominated by traders looking to lock down vessels for longer, according to shipping broker Braemar ACM. Charterers have sought to cover their winter shipping time, keeping forward rates high and above spot freight levels.
Rates rose dramatically last winter as Asian and European demand surged in a colder-than-normal climate, forcing buyers to book ships at the last minute for higher prices. Ships were tied up for longer distances as they moved between the Atlantic and Pacific basins to meet the unexpected increase in demand.
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Bloomberg New Energy Finance said in its winter outlook that fears of a similar rate hike this year have pushed forward charter rates 83% since March.
Fearnleys said spot rates could rise in the coming weeks as quick sublease tonnage returns to longer-term schedules and “interest in spot cargoes for late November / December arrives due”.
Spark Commodities on Friday valued spot freight rates for a 160,000 cubic meter LNG vessel in the Atlantic Basin at $ 64,000 / day, up 17% from its previous estimate on Sept. 28. Spot rates in the Pacific Basin increased 12% over the same period. at $ 70,500. First month valuations also hit $ 83,000 / day in the Atlantic and $ 86,750 in the Pacific.
Delays at the Panama Canal last winter also left fewer ships available to service booming exports to the United States as global demand increased. The same could happen this year, and vessel tracking data already shows that U.S. exporters have used a longer route around the Cape of Good Hope more often since the start of the year to bypass ongoing congestion as demand remained strong.
The sixth train at Sabine Pass LNG and Calcasieu Pass LNG in Louisiana could begin service before the end of the year, further boosting US exports and demand for ships in the Atlantic.
For now, stable shipping rates have softened the already lucrative LNG trade with prices booming. The shipowner Flex LNG Ltd. said in a recent presentation that a shipment of LNG to the United States costs around $ 20 million at current rates, but is valued at $ 112 million in Europe and $ 128 million in Asia.