Tankers carrying crude oil and refined products are wallowing below cash-breakeven. Their near-term prospects are grim. In contrast, spot rates for tankers carrying liquefied natural gas (LNG) are now highly profitable, with some vessels earning $125,000 per day.<\/p>\n\n\n\n
\u201cThe gains have become more significant over the past couple of weeks, and current rates are a stark improvement from [rates] seen this past summer,\u201d said Clarksons Platou Securities on Monday.<\/p>\n\n\n\n
Fearnleys Securities described last week\u2019s chartering activity as \u201cfrantic.\u201d As Cleaves Securities Head of Research Joakim Hannisdahl put it: \u201cAnother week, another rally for LNG owners.\u201d<\/p>\n\n\n\n
While six-figure rates look impressive, they\u2019re typical for this time of year. The good news is that LNG shipping \u2014 unlike crude and product tankers \u2014 is actually experiencing a normal seasonal upswing despite COVID.<\/p>\n\n\n\n
The bad news is that LNG shipping is still not back to where it was in 2019 \u2014 and there are major concerns about rates in 2021 and beyond.<\/p>\n\n\n\n
Rates have rebounded<\/strong><\/p>\n\n\n\n According to Clarksons Platou Securities, spot rates for tri-fuel, diesel-electric (TFDE) propulsion LNG carriers are now averaging $112,500 per day, up 105% month-on-month. Rates for M-type, electronically controlled, gas-injection (MEGI) propulsion carriers are at $125,000 per day, up 89% month-on-month.<\/p>\n\n\n\n This is up sharply from mid-June lows of $30,000 per day for TFDE carriers and $39,000 per day for MEGI carriers.<\/p>\n\n\n\n But current rates need to be put in context. At this time in 2019, rates for TFDE and MEGI carriers were $140,000 and $150,000 per day, respectively. At this time in 2018, spot MEGI carriers were earning $170,000 per day, with a few vessels being booked at all-time highs of $200,000 per day.<\/p>\n\n\n\n LNG trading normalizes<\/strong><\/p>\n\n\n\n Following COVID lockdowns earlier this year, the spread between LNG commodity pricing in the U.S., Europe and Asia narrowed. When that spread is too low, the arbitrage profit doesn\u2019t cover the charter cost, so shippers cancel cargoes. That dampens vessel demand and rates, and decreases the volume at sea. One reported side effect was a plunge in transits of Asia-bound U.S. cargoes via the Panama Canal.<\/p>\n\n\n\n Currently, said Evercore ISI analyst Sean Morgan, \u201crates for the larger vessels have jumped \u2026 as the arb [arbitrage spread], especially to Asia, has opened up. Cancellations have largely ceased and charterers are attempting to lock in tonnage amid seasonal demand shifts.\u201d<\/p>\n\n\n\n The more LNG that goes from the U.S. to Asia as opposed to Europe, the longer the voyages and the higher the vessel demand. That\u2019s what\u2019s happening, which is good for spot rates and good for Panama Canal volumes.<\/p>\n\n\n\n \u201cThe arb has shifted from the U.S. Gulf\/Europe \u2014 Henry Hub\/Dutch TTF [hub pricing spreads] \u2014 to U.S. Gulf\/Northeast Asia \u2014 Henry Hub\/Japan and Korea JKM \u2014 during the last few weeks,\u201d explained Morgan. This is \u201cpushing up ton-mile demand on long-haul ships to Asia,\u201d he said. \u201cDelays at the Panama Canal are also extending voyages and helping to bolster global fleet utilization.\u201d<\/p>\n\n\n\n Hoping for a cold winter<\/strong><\/p>\n\n\n\n The colder the winter, the better for LNG shipping rates.<\/p>\n\n\n\n During a webcast last week, Hannisdahl commented, \u201cIt\u2019s basically confirmed that we are in a La Ni\u00f1a weather pattern this year. That is positive for colder weather for the northeast Asia region \u2014 Japan, Korea and northern China. That is likely to drive demand, especially for heating.<\/p>\n\n\n\n \u201cBack in the middle of the year we saw 45 cargo cancellations each month,\u201d Hannisdahl said. \u201cCancellations are down to zero for December and LNG carrier spot rates are surging. The short-term outlook is really kicking into life.\u201d<\/p>\n\n\n\n Seasonal rebound and stock pricing<\/strong><\/p>\n\n\n\n LNG shipping stocks have performed poorly this year, as have almost all shipping stocks. Could the winter rate boost give these equities some support?<\/p>\n\n\n\n The complication is that different owners have different exposure to spot rates. Unlike crude and products tanker markets, shippers transport most LNG via multiyear contracts. Only a relatively small portion of voyages are spot.<\/p>\n\n\n\n According to Hannisdahl, \u201cFlex LNG [NYSE: FLNG] is the main investible share in our opinion. It\u2019s highly undervalued, has a modern fleet and has good exposure toward the current spot rate environment.\u201d<\/p>\n\n\n\n Morgan cited improved market conditions and raised his Q3 2020 earnings estimate for GasLog Ltd (NYSE: GLOG) from a loss of 4 cents per share to a gain of 2 cents per share.<\/p>\n\n\n\n But the problem for LNG shipping equities is that investors may focus more on what\u2019s around the corner than on current rates.<\/p>\n\n\n\n Spot rate rally may not have legs<\/strong><\/p>\n\n\n\n Charterers do not appear convinced that the current spot rate rally has legs.<\/p>\n\n\n\n In a research note Monday, Clarksons Platou Securities analysts Frode M\u00f8rkedal and Omar Nokta wrote that \u201ca key difference this year\u201d involves the relationship between spot rates and three- to six-month time charters.<\/p>\n\n\n\n \u201cTime-charter rates in the three- to six-month range are down marginally week-over-week at $68,000 per day for MEGIs, $53,000 per day for TFDEs and $38,000 per day for steam ships. A year ago, these charter rates were at $120,000, $90,000 and $70,000 per day, respectively, nearly in line with prevailing spot rates at the time. Charterers are clearly viewing this improvement as short-term in nature, driven by winter demand and wide LNG price arbitrages.\u201d<\/p>\n\n\n\n Jason Freer, global head of business intelligence at Poten & Partners, said in a webinar last week, \u201cOnce the winter spike is over, we would expect to see spot rates come down and availability of vessels to rise.\u201d<\/p>\n\n\n\n Orderbook is high<\/strong><\/p>\n\n\n\n Freer said, \u201cOur view is that the market is still going to be long [LNG cargo supply over demand] next spring and summer. As prices fall back out of the money, it\u2019s fairly likely you\u2019ll see some cargo cancellations out of the U.S. again. Not to the same degree we saw this year. But there will still be a significant surplus [of LNG supply] in spring and summer 2021.\u201d<\/p>\n\n\n\n Yet another problem is the high newbuilding backlog for LNG carriers, which will add more vessel supply and create headwinds for rates. Orderbooks are historically low for crude and product tankers, bulkers and container ships. Not so for LNG.<\/p>\n\n\n\n \u201cThe current orderbook for LNG vessels is equivalent to 23% of the existing fleet,\u201d said Morgan, who cautioned: \u201c2021 probably will not be the panacea to the problems of 2020.\u201d<\/p>\n\n\n\n Hannisdahl sees gross deliveries equating to 9% fleet growth next year (excluding scrapping, cancellations and delivery slippage). \u201cWe expect gross deliveries to be persistently elevated going forward,\u201d he said.<\/p>\n\n\n\n COVID fallout: FIDs halted<\/strong><\/p>\n\n\n\n Fleet growth should be roughly the same as it has been over the past six years. \u201cBut over the past six years you have had quite good demand growth,\u201d said Hannisdahl. \u201cThe question is: Will we see the same good demand growth [in the coming years]? The answer to that is no.\u201d<\/p>\n\n\n\n In the wake of COVID, final investment decisions (FIDs) for new LNG export projects have ground to a halt. \u201cPeople are constructing what they were already constructing, but all the new investment decisions are being postponed. That\u2019s the key issue here,\u201d said Hannisdahl. Fewer FIDs equals less incremental volume at sea in the years ahead.<\/p>\n\n\n\n Seasonal strength notwithstanding, Hannisdahl doesn\u2019t foresee another cyclical upcycle for LNG shipping until 2024-25. If he\u2019s right, that\u2019s too long of a wait for most equity investors. Tankers carrying crude oil and refined products are wallowing below cash-breakeven. Their near-term prospects are grim. In contrast, spot rates for tankers carrying liquefied natural gas (LNG) are now highly profitable, with some vessels earning $125,000 per day. \u201cThe gains have become more significant over the past couple of weeks, and current rates are a […]<\/p>\n","protected":false},"author":2,"featured_media":3198,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/posts\/3197"}],"collection":[{"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/comments?post=3197"}],"version-history":[{"count":1,"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/posts\/3197\/revisions"}],"predecessor-version":[{"id":3199,"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/posts\/3197\/revisions\/3199"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/media\/3198"}],"wp:attachment":[{"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/media?parent=3197"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/categories?post=3197"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/oceantrackshipping.com\/wp-json\/wp\/v2\/tags?post=3197"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
Source: FreightWaves by Greg Miller, https:\/\/www.freightwaves.com\/news\/lng-shipping-rates-just-hit-125000-per-day#:~:text=According%20to%20Clarksons%20Platou%20Securities,%25%20month%2Don%2Dmonth<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"