Tankers: Is LNG the New Oil?

LNG shipping rates are headed for higher ground over the summer, as LNG demand is expected to keep growing. In its latest weekly report, shipbroker Intermodal said that “due to sluggish demand and massive inventories, spot LNG prices in Asia plummeted to a two-year low, while prices in Europe also declined below the $10 mark against a backdrop of healthy inventories, which are hovering above the 5-year average, and subdued demand for more supplies. According to the IEA’s latest quarterly gas market report, the firm outlook for the remaining of the year will not eliminated future volatility and should not serve as a deterrent from taking steps to reduce potential risks. Global gas demand in 2023 is seen at 4.04 Tcm, 2% lower y-o-y, underpinned by increasing demand in Asia Pacific and the Middle East. In terms of supply, according to the IEA, in 2023 the U.S. is forecast to take over as the biggest supplier of LNG and account for 50% of the supply growth, driven by the expansion of the Calcasieu Pass LNG terminal and the restart of Freeport LNG, which resumed full operations at the end of Q1. Along with the U.S., the expansion of the Coral South and Congo floating LNG plants is expected to expand the supply of LNG from Africa, South and Central America by close to 10 bcm. In contrast, a decrease in LNG production from Russia is anticipated”.

According to Ms. Chara Georgousi, Research Analyst with Intermodal, “spot demand is pivoted by price-sensitive South East Asian buyers who are currently largely benefiting from the favorable pricing fundamentals and underpin the current LNG market backdrop. A resurgence in economic activity and possibly increased industrial gas use are expected to lead to a more than 6% rise in China’s gas demand in 2023 and a 10-15% increase in the country’s imports, according to IEA’s report. This incremental demand could potentially absorb a global surplus of spot LNG cargoes.

In Thailand, a current heatwave is weighing on the country’s hydropower and could result in increased demand for spot LNG cargoes. India’s demand for spot cargoes, albeit slightly softened following a number of buy tenders concluded during the month, is forecast to remain robust until winter starts if the weakness in LNG prices is extended. In addition, imports by Pakistan and Bangladesh continued to firm in April in anticipation of the summer season. For instance, the government of Bangladesh, which started importing LNG from the spot market in February 2023, is planning to import 8 spot LNG cargoes in 2H 2023, on top of the 12 spot LNG cargoes delivered or set for delivery within the 1H 2023. Overall, imports from price sensitive buyers in Asia appear robust and strengthening from Q1 to Q2, partially offsetting the curbed appetite for LNG imports in Japan and South Korea, amid stable weather conditions and an uptick in nuclear power generation”.

Ms. Georgousi added that “the current contango, which has led to a persistent elevated level of floating storage in recent weeks, suggests that LNG demand could peak towards the summer and despite planned maintenance in the U.S and Qatar during the summer which could somehow restrict the supply, the availability of spot cargoes will remain healthy in the Atlantic basin. Under the current contango in prices and a forecast for a hotter compared to last year’s summer in Europe, it is possible that competition will arise between European and Asian buyers for the Atlantic cargoes, thus allowing owners to keep upward pressure on rates. Spot LNG freight rates extended their downward momentum last week, plummeting to yearly lows, with both Atlantic and Pacific spot rates hovering close to the $35,000/day mark on May 19th. However, firm sentiment still prevails in the LNG carrier market, and the forecast for the remaining 2023 and beyond is positively impacted by worries about energy security and the role of gas in the energy transition”, Intermodal’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide