- Higher prompt LNG shipping rates are breaking seasonal patterns, signalling a tighter market over the next year, say shipowners.
- The bullishness comes despite minimal new liquefaction in 2022 and the arrival of over 30 new modern vessels.
- Spot rates for TDFE/DFDE and MEGI/XDF (Two-Stroke) vessels have overtaken long term rates, which is an unusual pattern for summer.
An ICIS news source by Clare Pennington states that LNG shipping outlook bullish as oversupply risk drops.
High European gas prices
The shift has been linked largely to high European gas prices and ongoing demand from Asia.
The fleet balance and a strong re-let market are also key.
Fleet Balance
About 32 modern newbuildings (MEGI/XDF and TDFE/DFDE) will be delivered in 2022 to shipowners.
About 50-55 newbuildings hit the water 2021, but liquefaction capacity also increased keeping the shipping market long overall, which is not the case for next year.
“You would expect a long [LNG shipping] market [in 2022],” said a shipping analyst. “But the opposite is the case.”
Re-let Fleet
Almost all modern LNG carriers are let for multi-month or annual charters as traders seek to sell in a higher price environment.
A re-let market can exacerbate spot tightness, but the speed with which spot rates rose still surprised some.
The jump was a surprise, “given how many newbuilds were being fixed ex-yard [this year], at around $65,000-$70,000/day for term business”, said a shipping source on the switch from normal patterns.
Traders and portfolio players looking at near-term optimisation are not keen to sublet for fear of not having tonnage when opportunities materialise.
US Rise
“I attribute it to the need for extra tonnage to go from US Gulf of Mexico to Asia via Cape of Good Hope and the Mediterranean (Suez Canal),” the shipping source added.
The US has seen record export levels this year, and Atlantic tonnage particularly tight due to vessels still positioning in Asia.
Nevertheless Asia traders such as JERA, DGI and PetroChina have all taken Atlantic positions, said sources. Low inventories in Asia and Europe mean restocking into winter, while carbon could remain a bullish factor for gas prices.
With more demand from Latin America as well, said the source “we have something of a shortage”. In the summer of 2020 Asian traders were trying to dispose of excess cargoes.
Rising Market
“At the moment, high LNG prices mean you can compensate freight rates with trading options,” said a trading source.
Given that most of the market is now controlled by charterers “it is likely [they] are comfortable with rates”, said another shipping source.
Two-stroke (MEGI/XDF) vessel rates are being negotiated for one year at around $100,000-$120,000/day, said a shipping source on 6 July. Such levels would be comfortably above breakeven for shippers.
Two stroke vessels
Two stroke vessels command a premium. Although TFDE/DFDE and steam-propulsion remain part of the global fleet, the “emphasis on decarbonisation places more of a premium on two-strokes so I could easily envisage further strength in that sector and a softening in the TFDE class”, said a shipowner.
For owners, price spreads are key. In the short term, “we are more focused on the spread between Europe and Asia”, said another owner, explaining that it has narrowed due to strong European demand pushing Asia LNG prices.
Widening prices would further stimulate the market, due to longer distances boosting existing shipping demand.
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Source: ICIS
