LNG shipping rates spike with no respite seen through 2019

Dynagas LNG Partners LP

21/09/2018 15:18

* September rates reach $95,000 a day from $75,000 in August
    * In 2017, LNG shipping rates were usually $30,000 to
$40,000
    * Rising U.S. LNG deliveries tie up ships for longer
    * Shippers charter ships for longer, leaving less for others

    By Sabina Zawadzki and Jessica Jaganathan
    LONDON/SINGAPORE, Sept 21 (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.  LNG/ 
    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 U.S. 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 U.S. 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 U.S. 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
U.S. 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.
    "If (ship) ordering activity continues at recent levels
there is a high danger that it will be too much too soon," said
Andrew Buckland, Wood Mackenzie's LNG and shipping analyst.

 (Reporting by Sabina Zawadzki
Editing by Edmund Blair)
 ((sabina.zawadzki@thomsonreuters.com; +44 207 542 4051;))