LNG Suppliers on a Frantic Run To Cut Floating Storage Positions


  • LNG suppliers eye Thailand, Turkey, Japan to cut unwanted floating storage.
  • Floating storage volumes could rise in coming weeks.
  • No economic incentive to store LNG on vessels now.

LNG suppliers are reaching out to potential alternate buyers in Asia and Europe to sell cargoes diverted from China following the coronavirus outbreak, as they scramble to cut floating storage positions they have been forced to hold even though it does not make commercial sense, write Sambit Mohanty and Srijan Kanoi for Platts.

LNG demand fall leads to cargo diversion

A dramatic fall in China’s LNG appetite prompting cargo diversions, as well as the limited bandwidth in Asia to quickly absorb incremental volumes, have left LNG suppliers with little option but to hold the floating cargoes.

While an anticipated resumption of commercial operations in China might provide a ray of hope for demand to rebound from low levels, analysts are of the view that this many not happen at breakneck speed.

As a result, the volume of floating storage — the bulk of it in Asia — could rise in the coming weeks.

LNG production has been really strong with a lot of loadings recently. And with demand continuing to decline as we head into the shoulder season, LNG floating storage volumes could increase in the next few weeks,” said Jeff Moore, manager at Asian LNG Analytics at S&P Global Platts.

He further added, “However, with more normal operations starting in China, they should start to work through the stocks and hopefully absorb some of the current volumes on water. So this might offset floating storage volumes a bit.

Global LNG loadings still remain relatively robust at 1.53 Bcm/d, while cargo discharges have been at 1.37 Bcm/d over a 30-day period, making the mismatch between supply and demand an increasingly untenable situation going into the shoulder months.

In fact, the volume on the water has surpassed levels seen in the fall, when the shipping market was flooded with floating cargoes,” it said.

Floating storages

According to James Waddell, senior global gas analyst at Energy Aspects, there were some 16 vessels being used as floating storage at the start of the week — most of them in the Asia-Pacific region — and all were distressed cargoes.

There are small demand responses from a few players. Israel has reportedly bought a couple of canceled Chinese cargoes. Turkey has been buying cheaper spot LNG and turning down its Russian pipeline supply … the rejected Chinese cargoes make LNG relatively cheaper for them,” Waddell said.

Also, there are some market responses to absorb LNG in Asia, with Thailand, for example, planning to lower domestic production to take spot LNG instead. But demand is not stepping up quickly enough to avoid LNG cargoes being left stranded at the moment,” he added.

India is one of the few Asian countries where buyers are rushing to snap up LNG at relatively low prices as suppliers look for alternate markets.

One of the big surprises in the midst of the current turmoil has been India, where LNG demand picked up more than 25 Mcm/d,” Platts Analytics said.

  • Indian LNG importers have issued a flurry of tenders to capitalize on the lower spot LNG prices, seeking both spot and short-term cargoes.
  • So far, Indian end-users have issued tenders and procured almost 67 cargoes, amounting to about 4.3 million mt, to be delivered during the year, Platts data showed.

Moore said that other than India, Japan might have the ability to absorb some extra volumes.

Commercial viability

Asian LNG prices and the European gas forward curve for the summer months have a narrow contango structure of about 5-15 cents/MMBtu between each month, providing little incentive for traders to float LNG cargoes.

There is no economic incentive to store LNG on vessels given the current shape of the TTF and JKM near curves. So, the floating storage is simply an inability to find a market for the LNG,” Waddell said.

With a daily freight rate of around $40,000/day and prices around $3/MMBtu, traders would require at least a 40-45 cents/MMBtu contango structure between each month to account for the daily hire charges and boil-off, Platts calculations showed.

We are seeing LNG floating storage due to lack of overall demand. Spot charter rates for modern LNG carriers have tumbled from around $70k-$80k/day at end-January to around $40k/day in February, despite the many incidences of floating storage. This is largely due to the current oversupply of vessels in the market,” said Siddharth Kaul, analyst at Facts Global Energy.

  • Analysts added it’s harder for Asian markets to absorb short-term increases in LNG supply compared with the European market.
  • Asian markets typically do not have as much underground storage capacity or a power sector that responds quickly to low gas prices.

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Source: Platts


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