Charter rates for LNG tankers are beginning to fall from 2018 highs that reached as much as US$195,000 a day, as more vessels come down the slipway and expand the global fleet.
In a sharp drop, rates had declined at the end of November to around US$160,000 a day, according to Reuters. One shipbroker said the spot rate in early December for a newbuild vessel was as low as US$140,000 a day because more vessels were becoming available on the charter market.
And it’s possible the rate could fall further, industry sources said, with up to 10 LNG carriers coming on the spot charter market during December as floating cargoes are unloaded.
Rates are also volatile, with big troughs between the highs and lows. In June, for example, they ran at around US$90,000 a day in the Atlantic basin and at US$70,000 a day in the Pacific, according to energy consultant Wood Mackenzie.
LNG charter rates closely reflect the spot LNG trade, usually following the price of the super-cooled gas. As Reuters explained, “[the price] has fallen since September due to sluggish demand from Asian buyers.”
There is also a close relationship between charter rates and tanker movements. Reuters added “Due to inflated shipping rates, not many spot Atlantic cargoes travelled east in recent months. Some companies had to arrange cargo swaps in order to reduce costs.”
And explaining the fewer movements lately between the Atlantic and the Pacific basin, one LNG trader told Reuters “Shipping rates are very high [so] there is not much room for work at the moment.”
However, it is expected that most of the demand for LNG shipments in early 2019 will come out of Asia Pacific where ExxonMobil, BHP and Australia Pacific LNG will be chartering vessels to load up from Australia-based plants and sail for gas-hungry Asian markets, in particular China which has become the world’s biggest buyer of LNG.
Although charter rates have been falling, they are still well above those applying in 2017. In Q1 2017 they averaged below US$100,000 a day.
Meantime the global fleet of LNG carriers will continue to grow. At last count, in mid-September, no less than 33 new vessels had been ordered in 2018 so far, according to Wood Mackenzie’s principal analyst for LNG shipping and trade, Andrew Buckland. That compares with 19 in 2017 and just six in 2016.
New vessels are hitting the water faster than ever before. At the end of Q3 2018, 36 tankers had been added to the global fleet of LNG carriers, with three being scrapped. Another 22 are due for delivery before the end of 2018.
Sounding a cautionary note, Mr Buckland said “Owners need to be careful they don’t over-order. There is still a huge number of ships ordered in the 2011-2014 LNG newbuilding boom to be delivered to the fleet. And there is a long history of new ships arriving before new supply.”
On the bright side, he added that there is a new wave of LNG supply projects coming on stream between now and 2020, most of which will require the gas to be shipped. Also, terminals are opening at a rapid rate, for instance in China, which will facilitate deliveries.
The steady stream of orders for new LNG carriers is largely attributable to falling construction prices. “In real terms newbuilding prices have never been lower [and they] look even more attractive when you consider how much more you get for your money with the latest ship designs,” Mr Buckland pointed out. “The temptation for owners is to order sooner rather than later while the newbuilding price remains low.”
The newbuilds are so much more advanced in terms of design and technology that they are making ships ordered even three or four years ago outdated, Mr Buckland explained. That is especially true of propulsion. The new generation of gas-injection, slow-speed engines now offers fuel savings of over 20 tonnes a day compared with even the latest dual-fuel diesel and tri-fuel diesel-electric engines. The savings over the older steam-powered ships are even bigger – up to 75 tonnes a day.
Also, the newbuilds are bigger. “Ship orders now are typically sized at 170,000 to 180,000 m3 compared to 155,000 m3,” he noted.