- Oversupply and High Storage Levels Depress LNG Freight Rates.
- Atlantic and Pacific Basin Shipping Rates Hit Lowest Levels Since 2019.
- Market Participants Predict Prolonged Weakness in LNG Freight Rates.
LNG freight rates have slipped to multiyear lows in the week of October 18, drawing closer to the operational cost thresholds and further casting a grim outlook among market participants. Away from arbitrage opportunities and towards contango removed some of the key supports for rates, and unusually high temperatures compared to previous years have worsened the situation further, reports S&P Global.
Contributing Factors
The main reasons for this sharp decline in freight rates include an increase in levels of gas in storage in Europe and Asia, as well as subdued cargo requirements. Lastly, an oversupply of ships has been noticed entering the market, bringing the depressed rate environment to reality. Market actors are pessimistic and expect the rates to be low for the next two years, with little hope of such rates coming back to what the 2022 numbers reflect.
This year’s trends are a deviation from historical patterns since historically, during this season, rates have always gone up.
Rates Drop in Atlantic and Pacific Basins
Rates in both the Atlantic and the Pacific Basins have dropped by October 18. The Atlantic Basin day rates of TFDE ships decreased to $18,500/day from $130,000/day for the same period last year. In the Pacific Basin, TFDE ship rates decreased to $29,000/day from $130,000/day a year ago. These are the lowest rates since 2019. For two-stroke vessels, Atlantic Basin rates decreased to $28,500/day, while last year, for the same period, it was $155,000/day, and in the Pacific Basin to $40,000/day versus $170,000/day a year ago.
Market Outlook
Recent fixtures have been between $20,000/day and $30,000/day, with relatively muted activity, especially in the Pacific Basin. The Atlantic is slightly more active but is still tight. There is a lack of cargo tenders on the FOB side that hints at a challenging month ahead, and continued weakness throughout the remainder of the year is expected. In addition, concerns over over-capacity ships and delays in LNG projects have put a further strain on rates. On the other hand, one participant said, “I didn’t expect such low rates—I thought we were bottom— already at them but apparently not.”
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Source: S&P Global
