Liquefied natural gas (LNG) is one part of the way out of Europe’s current energy mess, but it’s not an overnight solution.
Much as climate activists might dislike it, liquefied natural gas (LNG) is one part of the way out of Europe’s current energy mess, but it’s not an overnight solution.
In a recent piece, I noted that:
LNG is a global product, and Europeans will, as they did this year, have to battle with Asian buyers to secure a supply until more export capacity is built. That will take years, not months, and on the European side more import capacity should be added too. And, yes, there is currently a shortage of LNG tankers.
So how’s that shortage of tankers going?
Like this (via Freightwaves):
It’s not even winter yet and short-term LNG shipping rates are already in record territory, not just for LNG shipping but for any commercial shipping sector ever. And these rates are expected to keep climbing.
Clarksons Securities put average voyage rates for the most efficient LNG carriers — those with two-stroke propulsion known as MEGI or XDF carriers — at $313,000 per day as of Monday. Benchmark tri-fuel, diesel engine (TFDE) carrier rates were assessed at $276,700 per day.
“LNG carriers are shooting for the stars. Spot earnings have reached dizzying heights,” Clarksons Securities analyst Frode Mørkedal wrote. “According to brokers, owners can now achieve three-way economics, which means they are compensated not just for a regular round voyage but also for positioning voyages. As a result, earnings on a round-trip basis might be around $500,000 a day.”…
Rates have gone into the $300,000s per day on occasion in the past two winters. But the current market situation is unprecedented. Gas supplier Russia is at war, it has shut off supplies to Germany, and someone just sabotaged two pipelines in the Baltic.
The number of LNG ships available for spot deals is exceptionally limited. As a result, the spot market is extremely thin. Almost all of the world’s LNG fleet is locked up on on long-term charters. In the past, more of those vessels may have been “relet” into the spot market to take advantage of skyrocketing rates. This time around, the profits from buying and selling the cargo itself [LNG] is more attractive.
For comparison on the pricing, here’s an extract from a Freightwaves piece from roughly this time last year:
Clarksons Platou Securities reported that benchmark spot rates for tri-fuel, diesel-engine LNG carriers were $157,500 per day on Monday, up 86% week on week. Rates for MEGI-propulsion carriers were $180,000 per day, up 65% week on week. Even rates for older steam-power LNG carriers are in six digits: at $110,000 per day, up 60% week on week.
This is a market with many different segments, meaning that “average” rates are of any limited relevance. Nevertheless, looking at the 2015-21 chart here gives some indication of the territory into which LNG shipping rates are now moving.