Published September 24, 2018, 10:00
PM
LONDON/SINGAPORE (Reuters) – The
price of shipping liquefied natural gas (LNG) has spiked in September and is
likely to remain high next year, buoyed by rising production from new plants
and concerns that demand for LNG vessels will outpace supply.
The rate for vessels shipping LNG
from the Atlantic Basin to Asia has jumped to $90,000 to $95,000 a day this
week from $75,000 a day at the end of August, brokers and traders said.
Rates, which broadly hovered around
$30,000 to $40,000 a day from 2015 to 2017, have risen due to longer distances
covered to transport LNG from new terminals in the United States and Arctic
Russia, surging demand in China and a limited number of ships.
Rates have hit “the highest levels
since the last bull market of 2012 … elevating the starting point for another
anticipated winter market rally and the next cyclical upturn,” said Jonathan
Chappell, analyst with Evercore ISI.
Shipping firms see little sign of
them slipping soon, predicting high rates for 2019 or longer, during their
earnings calls this month.
Hoegh LNG Chief Executive Sveinung
Stohle told investors and analysts he expected rates to “increase on the levels
where they are, certainly, for the next two to three years,”
Strong LNG demand has helped drive
the shipping rate rise. Japanese and South Korean utilities having been
stocking up on LNG for winter, driving prices to a seasonal four-year high.
Demand was stronger than usual after a summer heatwave meant reserves were
drawn down to power extra air-conditioning.
Despite this week’s pause, Asian
buyers are expected to return as the northern hemisphere winter sets in.
This increasing demand for LNG has
compounded already rising shipping rates, partly driven by the ramping up of
exports at Novatek’s Yamal LNG terminal and at US LNG terminals.
Deliveries of LNG from the Northern
Russian Yamal facilities have created extra demand on ships because
Arctic-class vessels lifting cargoes transfer the LNG to conventional carriers
in Europe for onward journeys.
Deliveries from US terminals to Asia
pass through the Panama Canal, taking longer than cargoes from second largest
producer in the world, Australia.
Wood Mackenzie estimates it takes
1.9 ships to carry 1 million tonnes per annum (mtpa) of LNG from the US Gulf to
Japan compared to 0.7 ships from Australia.
These factors have prompted many
shippers to book ships on multi-month or multi-year charters, locking in rates
before they rise but cutting the availability of vessels for others.
“If you’re at $85,000 now (for
shipping day rates), you could easily see $115,000 to $120,000 in the winter,”
said Jefferies energy shipping analyst Randy Giveans.
Ship deficit
Underpinning the rates is a worry
there may not be enough ships in coming years to match rising output, including
from US terminals, which are expected to add 84 mtpa by 2023, turning the
country into the world’s second largest exporter.
Iain Ross, the chief executive of
LNG shipping company Golar LNG, said this month the forecast of a 23 percent
rise in LNG production over two years would require 100 extra vessels. But only
66 were scheduled to be delivered in time, he said.
“It’s no longer possible to go out
today and order a vessel for delivery before 2021,” he said. “It seems to us
(there is) a structural change in the sector that will (be) driving demand.”
But Wood Mackenzie said shipping
firms should be wary of ordering too many more vessels now because of the
potential for a glut of LNG at some point between 2020 and 2025, as new
projects coming onstream may find there are not enough buyers.
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