- LNG shipping rates have dropped to record lows due to oversupply and delayed liquefaction projects.
- High European gas inventories and a lack of floating storage reduce carrier demand.
- Aging steam-turbine carriers may face scrapping or conversion as they become commercially obsolete.
The LNG shipping market is facing an unprecedented downturn, with spot and period rates hitting all-time lows. Contributing factors include an oversupply of vessels, delays in liquefaction projects, and diminished demand for floating storage. These trends, coupled with an aging fleet, hint at potential shifts in fleet composition and market dynamics, reports Lloyd’s List.
Spot Rates Hit Record Fourth-Quarter Lows
LNG shipping spot rates have declined sharply across all carrier types. Steam turbine carriers average $11,250 per day, down 55% from the previous month, while two-stroke engine carriers now earn $30,000 per day, a 43% drop.
Compared to last year’s figures, current rates are only a fraction of their former levels.
Period Rates Follow Similar Decline
Long-term contracts offer little relief, with three-year charters for two-stroke carriers now at $62,700 per day—a 42% drop year-on-year.
One-year and six-month rates are even worse, down 57% and 71%, respectively, further compressing earnings for shipowners.
Oversupply of LNG Carriers Pressures Market
The rapid addition of new-built LNG carriers exacerbates the oversupply issue. Flex LNG reports 68 new vessels delivered this year, with even more expected in 2024 and beyond.
Many of these ships entered service before associated liquefaction projects became operational, pushing them into the spot market.
Europe’s High Gas Inventories Limit Demand
Europe’s substantial gas reserves heading into winter eliminate the need for floating storage.
Unlike in past years, high gas prices aren’t in contango, discouraging charterers from tying up ships in storage. This trend leaves many carriers idle or competing for limited cargo.
Rising Spot Fixtures Reflect Market Saturation
Spot fixtures surged 77% year-on-year as charterers capitalized on low rates, shifting preference from long-term charters to spot markets.
This trend indicates a saturated market, with plenty of ships available for short-term contracts.
Aging Steam-Turbine Fleet Faces an Uncertain Future
The market downturn may accelerate the retirement of steam-turbine LNG carriers.
Flex LNG predicts that 53 of the 75 steam-turbine ships with expiring charters over the next two years will exit service, either through scrapping or conversion.
Scrapping and Conversion Gaining Traction
While scrapping remains rare, some older carriers are being sold for conversion projects.
Recent sales, like the BW Boston, hint at the growing interest in repurposing these aging vessels, but only three LNG carriers have been scrapped so far this year.
Future Outlook: Weak Winter Demand
The outlook for the rest of 2024 remains bleak.
With continued oversupply, high inventories, and slow growth in LNG export volumes, the market is unlikely to recover soon.
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Source: Lloyd’s List
