LNG Shippers Under Pressure

Friday January 25, 2013

Liquefied natural gas (LNG) freight rates are under pressure as supply remains tight while new vessel deliveries are coming, according to Drewry Shipping Consultants.

The firm's LNG Freight Index gained 20 percent in December as winter demand for the fuel grew, but short-term rates remained 4 percent below their level a year previous.

Demand from Japan is a concern for LNG shippers as the government considers restarting the nuclear plants that were shut down after the Fukushima disaster to avoid paying rising prices for LNG.

The fuel costs almost twice as much in Japan as in Europe, at more than $15/MMBtu.

Major export projects are in development in Australia and the U.S., but they are not due to begin operations until the second half of the decade, and supply is expected to remain tight in 2013.

Natural gas production in the U.S. has reduced imports to the country, and many European countries are receiving gas through pipelines rather than LNG tankers.

Although Asian buyers have been pushing for changes to pricing schemes that would put their prices more in line with those in the Atlantic Basin, Drewry predicts no change from traditional oil-indexed pricing in the near future.

A recent Bloomberg analysis of market-watcher opinions found that daily rates for LNG carriers will fall 7.3 percent in 2013 as the market moves from an 11-vessel shortage to a surplus of one ship, but it said shipments of the fuel remain a growth area.

According to Reuters, the price of LNG is set to spike to its highest-ever level this year as demand rises while little new supply is added.