News & Media

19 January, 2021

LNG Market News - Japan

(Source: Japan Maritime Daily 19/Jan/2021)

The spot market for LNG carriers is tight

The supply and demand of the spot and short-term charter ships for LNG (liquefied natural gas) carriers ships is tight. With the rapid increase in heating demand in Asia in the midwinter, long-distance trade between the U.S. loaded and the Far East unloaded is expanding. Congestion at the Panama Canal and strict loading deadlines for US LNG also added to the tightness. In the Atlantic, a very high daily contract in the $300,000 (about 35 million yen) range was reported this week. The reason behind the sharp rise is that the market structure for LNG carriers is such that there is little short-term and spot shipping capacity, and there are only about 20 free-running vessels at present. Therefore, there is a limitation of a “shallow-bottomed market“ (market officials) that is difficult to respond to a rapid increase in demand. “The shallowness of the bottom of the LNG carrier market has been revealed. The shippers may have reaffirmed that there is a risk that they will not be able to spot or charter even if they pays. “

LNG carrier market officials point this out.

The total number of large LNG carriers in the world is 570. Most of them are engaged in medium to long-term contracts, and it is estimated that there are about 20 LNG carriers currently operating freely in the charter market. According to broker information, as of the end of last year, there was only one LNG carrier in the world that could be chartered.

The price of LNG carriers is 20 billion yen, which is the highest among general merchant ships, and it is difficult for shipping companies to maintain them without a medium to long-term charter contract. This is because the charter market conditions during the non-demand season in summer are often below the break-even point, and investment risk is large.

At the moment, spot ships are running out in the Atlantic Ocean. A daily contract of $ 350,000 (including ballast costs) was reported on the US-Europe short-term route, soaring to nearly 10 times the $ 30,000-40,000 market price last summer. There is also information that the FSRU (Floating Storage and Regasification Unit) has been diverted to sea transportation on the US-Far East route.

■ From the United States to the Far East

Japanese electric power and gas companies are now facing an unexpected cold wave and are rushing to procure LNG while the nuclear power plant is shut down. China also seems to be aggressively procuring LNG in reaction to the reduction in Australian coal imports against the backdrop of political conflict.

The United States is the main source of additional procurement. Since last summer, a series of defects have occurred at LNG production plants in Scandinavia and Australia, and the presence of the United States has improved. As LNG prices soar in the Asian market in the midwinter, cheap US cargo movements to the Far East are rapidly increasing.

For export of LNG produced in the United States, there are many “tolling agreements“ in which the liquefaction processing of natural gas is outsourced to a local business operator, and strict adherence to the shipping date is required. As of the beginning of the year, around 30 LNG carriers were on standby off the coast of the United States to ensure that they could take delivery of LNG, contributing to the tight supply and demand situation in the Atlantic.

■ Changes in fleet management

“We are paying attention to whether it will be an opportunity for charterers to change the way they hold their ships.“

Market officials say so about the impact of the recent surge in market prices for spot vessels.

Due to the increase in production of US LNG with no destination restrictions, trading based on spot and short-term trading has expanded in the LNG market in recent years. On the other hand, sea transport is limited to Ship without specific contract, and there are still inflexible imbalances.

Under these circumstances, Western international oil majors and European traders, who are called “portfolio players,“ have abundant in-house LNG carrier fleets and pursue optimization of trading and fleet operations. JERA, the largest domestic power generation company, has also announced a policy to expand its fleet.

Japanese carrier official said, “There is a possibility that other electric power companies and gas companies will also move to secure more reserve capacity for the LNG carrier than before,“ and they will closely watch the future of charterer needs.

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