Expected high LNG prices due to high shipping rates

The International Energy Agency (IEA) warns lull in new vessel deliveries could lead to price volatility.

The rapid growth of the liquefied natural gas market is testing the shipping industry’s ability to supply specialised vessels, pushing rental prices for vessels capable of transporting the super chilled fuel to an all-time high. The growth of a spot market in LNG, together with increasing supply and demand from new buyers, especially in China, and the rise in flexible destination agreements have boosted the demand for vessels designed to carry the commodity between continents. “Shipping rates are higher than post-Fukushima levels, driven by additional LNG export volumes,” said Kwok Wan, lead LNG analyst at Clarksons, a shipping broker. With more production capacity expected to come online next year, rates were expected to remain elevated, he said. Some natural gas experts are worried whether the limited shipping capacity will hamper flows of LNG on the international gas markets. Spot market rates are at $170,000 a vessel a day, according to Clarksons. This is despite the shipping industry being about to see a high number of LNG carrier additions this year.

The IEA has warned that a lull in deliveries of special vessels from 2020 onwards could also lead to volatile prices and “a greater risk of vessels being unavailable” in its latest report on gas security. The Paris-based energy body said: “This absence of available shipping capacity in a fast-growing LNG market could be a serious issue for flexibility and security of supply. ”According to the IEA, after growing between 2018 to 2020, fleet capacity is expected to remain almost flat in 2021 and possibly 2022, unless new orders are placed in the near future. The LNG carrier orders as of mid-2018 totalled 104 vessels and an increase of 29 per cent to the total fleet capacity, said the IEA. Most of the vessels under construction are due for delivery in 2018 and 2019, with some deliveries deferred to 2019 and 2020. LNG vessels take two to three years to construct, and orders for these carriers were placed in or before 2015 when the LNG market was still experiencing tight supply and high prices.

With few vessels expected to be delivered from 2020 onwards, The IEA said its analysis showed that fleet utilisation would reach more than 90 per cent from 2020 and exceed 100 per cent by 2023. “It can be assumed that the LNG carrier market could become tight as soon as 2020,” the agency said.As US exports are set to grow until the end of 2020, shipping demand is expected to continue to increase, said the analytics unit of Platts, which assesses commodity prices. Despite the IEA predictions, Alastair Maxwell, chief financial officer at GasLog, a leading LNG tanker company said that vessels would be available for those who needed them, albeit at a price. He said: “The LNG shipping market will tighten due to less spare capacity, but that’s not the same as the market not being able to move the amounts of LNG required.”

 

Source: FT