The Shocking Tanker Shortage Pushing LNG Shipping Costs to Record Highs

Credit: Petrobras

The use of tankers as floating storage for liquefied natural gas (LNG) in the Atlantic basin has led to a surge in shipping costs, exceeding $200,000 a day and causing a shortage of available vessels, according to the market.businessinsider.

  • Daily charter rates for LNG tankers have more than doubled for October and November, impacting the energy market significantly.
  • Geopolitical tensions, including Russia’s invasion of Ukraine, have prompted traders to hoard LNG in floating storage, reducing the availability of tankers for shipping.
  • Europe’s energy reserves have swelled due to Russia’s actions, coupled with a milder winter, leaving the region with an oversupply of natural gas, leading to potential price surges.

Rapid Rise in Shipping Rates

Traders are facing exorbitant costs of over $200,000 per day to ship liquefied natural gas (LNG) in the Atlantic basin as the use of tankers as floating storage facilities diminishes the availability of vessels. Daily charter rates for October and November have more than doubled, presenting a challenging scenario for the energy market.

Increase in Tanker Holdings 

Following Russia’s invasion of Ukraine, many traders have turned to tankers as floating storage to hoard LNG, causing a drop in the availability of tankers. This strategic move comes amid geopolitical tensions and Russia’s retaliation to Western sanctions by reducing natural gas flows, prompting Europe to bolster its energy reserves.

Energy Stores Increase

Europe rushed to increase its energy reserves due to Russia’s actions and prepared for a potentially harsh winter. However, the continent experienced an unexpectedly mild January in 2023, resulting in an oversupply of natural gas in the region. This surplus, combined with the tanker shortage, poses a risk of pushing up gas prices ahead of winter.

Diesel Dumping into Floating Storage Arises

Despite selling significant amounts of crude oil and products to countries like India and China, Russia is facing challenges in finding buyers for its energy products. As a result, Moscow has turned to using ships as storage for its unwanted diesel, further squeezing tanker supplies and contributing to the soaring charter rates.

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