Awilco LNG, a Norwegian-based fully integrated pure-play liquefied natural gas (LNG) transportation provider, has highlighted in its analysis of the LNG market trends in the first half of 2024 and predictions for the upcoming period that the market activity is picking up the pace even though the charter rates have hit the lowest point since 2020, reports Offshore Energy.
‘Challenging’ period
According to the Norwegian firm, charter rates stayed mostly flat at a relatively low level during most of Q2 before rising slightly towards the end of the quarter and into Q3 until one producer in the United States Gulf (USG) was forced to close for about three weeks due to Hurricane Beryl. While this led to an increase in available vessels and momentarily drop in rates, the firm underlines these have recovered nicely, particularly in the East.
While Awilco LNG did not mention the project by name, this likely refers to the delay in restarting the 15-mtpa Freeport LNG, as Bloomberg also reported that at least ten cargoes for loading were canceled through August, sparking concerns over global LNG supply risk.
As the hurricane picked up speed, oil majors, Shell, BP, and Chevron decided to take measures to protect their personnel, evacuating non-essential members from their assets situated in the U.S. Gulf of Mexico, or even stopping production out of precaution.
Furthermore, the list of available vessels has been long and the increased ton-mile due to limited activity both in the Suez and the Panama Canal have been offset by weak demand during the summer period, highlights Awilco. Charter rates started to drop at the end of 2023, with the trend continuing well into 2024, while rates in Q2 are described as the lowest for the period since 2020.
The firm noticed a change in the trend of rates for the Atlantic basin being higher than those in the Pacific, justified by an open arbitrage for USG cargoes to head East, leaving the list of available vessels longer in the Pacific than in the Atlantic region. Spot rates have increased slightly, reaching around $70,000 in the Pacific and $55,000 per day in the Atlantic for tri-fuel diesel electric propulsion ship (TFDE) vessels.
Ahead of the upcoming winter season, the Norwegian player noticed some more interest in term charter contracts, but rates for one- to three-year periods remain flat, averaging at $60-65,000 per day for TFDE vessels. While charter rates stayed at relatively low levels, 170 fixtures were concluded in the first half of 2024, compared to around 200 for the entire year of 2023. Multi-months and one to three-year term activity have stayed at approximately the same level as earlier years.
Due to planned maintenance and unplanned outages, loaded volume declined compared to the previous quarter and was slightly lower than the same period in the two previous years, as noted by Fearnely LNG. Awilco describes EU storage levels as “comfortable,” with the Union seemingly on track to reach the required levels before the upcoming winter season. Seasonal low demand, mild economic growth worldwide, and stable storage levels in Europe are thought to have led to lower charter rates over the period than in recent years.
The firm says the US continues to be the top exporter in the world with 21% of the 98 metric tons (MT) loaded in the quarter, followed by Australia and Qatar with 19.5% and 18.8%, respectively. Limited trade through the Suez and the Panama Canal led to longer sailing distances and the ton-miles increase, which seems to have compensated for less volume.
The fleet of liquefied natural gas carriers (LNGCs) grew by 12 ships in the second quarter, bringing total deliveries in the first half of 2024 to 24. 27 orders were made during the quarter, mainly driven by requirements linked to the Qatar expansion projects, bringing the order book to 349 vessels by the end of the second quarter, based on Fearnley LNG’s data. The order book to fleet ratio reached nearly 54% at the end of the quarter, with 35% attributable to the ADNOC-led expansion project.
Awilco argues that the high number of deliveries for the next three years in combination with limited new LNG production expected on stream until the second half of 2025 may point to a challenging period ahead unless ton-miles increase. These new building vessels are expected to replace some of the over 200-strong two-decade-old smaller steam vessels. The prices of new buildings are projected to remain unchanged, with contract prices for Korean-built vessels quoted at around $265 million for 2027/2028 delivery.
Regarding the Norwegian player’s performance, solid results for the first half of 2024 were reported as the firm completed the refinancing of the two LNG vessels it owns. This move was meant to reduce cash payments by approximately $6.5 million over the next 12 months.
Both vessels are 2013-built 156,000 cbm TFDE membrane LNG ships. The first one, WilForce, was redelivered from the previous medium-term charter contract at the end of June and is trading in the spot market. The second, WilPride, is under charter until late 2025, with a two-year extension option at the current rate.
Awilco’s sister company, Awilco Drilling, recently settled arbitration cases related to an alleged breach of contracts for Nordic Winter and Nordic Spring with Seatrium, representing the legal culmination of a four-year-long saga.
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Source: Offshore Energy
