The Next Energy Threat Is From Surging Costs of Shipping

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  • Rise in international freight prices
  • Ship scarcity is a big threat 
  • Shipowners are demanding their ships back

Costs for transporting energy are rising as a lack of ships to transport necessary fuels this winter results from Europe’s rush for supply.

Costs over twice 

As the situation in Ukraine shows no signs of coming to an end, ships are transporting liquefied natural gas, diesel, and petroleum to Europe from farther afield than usual to replace Russian energy supplies. According to maritime experts, this is keeping vessels busy for longer and delaying their return to service, which has caused a rise in international freight prices.

For this time of year, LNG freight prices are high and on pace to surpass the winter peak of the previous year. According to data from the Baltic Exchange, shipping a cargo of US oil to China now costs more than it did in 2020, and sending a cargo of naphtha petrochemical feedstock from the Middle East to Japan now costs more than twice as much as it did in March.

Ship scarcity

According to traders and shipowners, the ship scarcity poses a threat to Asian nations that buy oil and gas from the US since they may find it challenging to obtain spare cargoes on short notice if the weather becomes particularly severe this winter. Even shipments of petrochemical feedstock are becoming more costly to transport, adding to the pressure on purchasers already struggling with a sluggish demand for chemicals as the rate of manufacturing slows.

Demanding ships back

According to Oystein Kalleklev, chief executive officer of shipowner Flex LNG Management AS, there are very few LNG ships available for lease through the winter, and only for brief excursions. According to him, shipowners are demanding their ships back because their fleet has been fully booked and they need them to be ready for when the Freeport LNG export plant starts up again.

After a fire at the Freeport facility in Texas in June disrupted a sizable chunk of US LNG exports, the facility is expected to resume operations in November.

Refusing to release

Energy firms are refusing to release LNG ships as they usually do at the end of summer because businesses are booking vessels for the winter season earlier than usual. According to traders and shipbrokers, petroleum tankers bought at lower freight rates are being retained on rent, sometimes consuming additional fuel to travel between Singapore and Malaysia for the sole purpose of keeping the boats.

To ensure supplies in the competitive market, dealers are refuelling ships at sea with natural gas and petroleum fuels.

“What we’ve seen in shipping this year has been remarkable as a result of the war in Ukraine,” said Peter Sand, chief analyst at Xeneta, a freight market analytics platform.

 

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Source: Bloomberg

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